This is the accessible text file for GAO report number GAO-14-290
entitled 'Army Corps of Engineers: Actions Needed to Further Improve
Management of Hopper Dredging' which was released on May 12, 2014.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as
part of a longer term project to improve GAO products' accessibility.
Every attempt has been made to maintain the structural and data
integrity of the original printed product. Accessibility features,
such as text descriptions of tables, consecutively numbered footnotes
placed at the end of the file, and the text of agency comment letters,
are provided but may not exactly duplicate the presentation or format
of the printed version. The portable document format (PDF) file is an
exact electronic replica of the printed version. We welcome your
feedback. Please E-mail your comments regarding the contents or
accessibility features of this document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
United States Government Accountability Office:
GAO:
Report to the Ranking Member, Subcommittee on Water Resources and
Environment, Committee on Transportation and Infrastructure, House of
Representatives:
April 2014:
Army Corps of Engineers:
Actions Needed to Further Improve Management of Hopper Dredging:
GAO-14-290:
GAO Highlights:
Highlights of GAO-14-290, a report to the Ranking Member, Subcommittee
on Water Resources and Environment, Committee on Transportation and
Infrastructure, House of Representatives.
Why GAO Did This Study:
The Corps is responsible for dredging sediment from waterways to
maintain shipping routes important for commerce. One dredge type, a
hopper dredge, performs much of the dredging in ports and harbors, and
the Corps uses its own fleet of hopper dredges and contracts with
industry to carry out the work. In 2003, GAO examined the Corps'
hopper dredging program and made recommendations to improve its
management. GAO was asked to review changes to the program.
This report examines (1) actions the Corps has taken to address GAO's
2003 recommendations for improving the information needed to manage
its hopper dredging program and develop cost estimates for industry
contracts; (2) effects since 2003, if any, of the statutory
restrictions placed on the use of the Corps' hopper dredges; and (3)
key challenges, if any, the Corps faces in managing its hopper dredge
fleet. GAO reviewed laws, regulations, and policies governing the Corps'
use of hopper dredges, and related Corps reports. GAO analyzed
dredging contract and financial data for fiscal years 2003-2012,
assessed the reliability of these data, and interviewed Corps and
dredging stakeholders.
What GAO Found:
The U.S. Army Corps of Engineers (Corps) has taken actions to address
GAO's 2003 recommendations for improving information related to hopper
dredging, but some data gaps remain. First, in response to GAO's
recommendation to obtain and analyze data needed to determine the
appropriate use of its hopper dredge fleet, the Corps established a
tracking log to document urgent or emergency work its dredges carry
out. The Corps also modified its dredging database to track
solicitations for industry contracts that received no bids and bids
exceeding the Corps' cost estimate by more than 25 percent, referred
to as high bids. Corps district offices, however, do not consistently
enter data on these solicitations, and Corps headquarters has not
provided written direction to the district offices to ensure data are
consistently entered. Tracking and analyzing no-bid and high-bid
solicitation data could enable the Corps to identify and address gaps
in industry's ability to fulfill certain dredging needs as the Corps
plans its future hopper dredging work. Second, in response to GAO's
recommendation, the Corps took action to assess the data and
procedures it used for developing cost estimates when soliciting
industry contracts. However, certain industry cost data the Corps
relies on remain outdated. For example, some of the data it uses on
hopper dredge equipment date back to the late 1980s. A senior Corps
official stated that a study could be conducted to update the data,
but the Corps has no plans to conduct such a study. Having a plan for
obtaining updated data is important for developing sound cost
estimates.
Statutory restrictions on the use of the Corps' hopper dredges since
2003 have resulted in costs to the Corps, but the effect on
competition in the hopper dredging industry is unclear. Restrictions
limiting the number of days that Corps dredges can work have resulted
in additional costs such as costs to maintain certain Corps dredges
while they are idle; the Corps incurs many of the costs for owning and
operating its hopper dredges regardless of how much they are used. The
restrictions, however, help ensure the Corps has the ability to use
these dredges to respond to urgent or emergency dredging needs when
industry dredges are unavailable. It is not clear to what extent
restrictions have affected competition in the dredging industry. The
number of U.S. companies with hopper dredges has not changed, but the
number and size of these dredges have decreased since 2003. In
addition, GAO did not find evidence of increased competition based on
the number of bidders and winning bid prices for Corps hopper dredging
projects since 2003.
Key challenges facing the Corps in managing its hopper dredge fleet
are (1) ensuring the fiscal sustainability of its hopper dredges and
(2) determining the fleet's appropriate future composition. In 2012,
the Corps determined that because of increasing ownership and
operating costs, among other things, its hopper dredges would become
unaffordable unless actions were taken, including increasing the daily
rates charged to projects using the Corps' dredges. Factors such as
the aging of the Corps' fleet and the effect on industry of possible
changes to the Corps' fleet make it difficult for the Corps to
determine the best fleet composition. In studies it conducted in 2011
and 2012, the Corps identified actions that could help address these
challenges, such as reviewing the operating costs of hopper dredges to
evaluate the affordability of certain dredges.
What GAO Recommends:
GAO recommends the Corps provide written direction to its district
offices on consistently populating its database with no-bid and high-
bid solicitations and develop a written plan for a study to obtain and
periodically update certain hopper dredging cost data for its cost
estimates. The Department of Defense concurred with the
recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-14-290]. For more
information, contact Anne-Marie Fennell at (202) 512-3841 or
fennella@gao.gov.
[End of section]
Contents:
Letter:
Background:
The Corps Has Taken Actions to Address Our 2003 Recommendations but
Does Not Collect All of the Recommended Data:
Statutory Restrictions on Corps Hopper Dredges Have Resulted in
Additional Costs to the Corps, but Effects on Industry Competition Are
Unclear:
The Corps Faces Challenges Regarding the Fiscal Sustainability and the
Future Composition of Its Hopper Dredge Fleet:
Conclusions:
Recommendations for Executive Action:
Agency and Third-Party Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: The U.S. Hopper Dredge Fleet:
Appendix III: Comments from the Department of Defense:
Appendix IV: Comments from the Dredging Contractors of America:
Appendix V: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Statutory Restrictions and Other Information on the Use of
the Corps' Hopper Dredges:
Table 2: Summary of Operations and Cost Data for the Corps Dredge
McFarland:
Table 3: Winning Bid Prices and Number of Bids for East Coast
Maintenance Hopper Dredging Projects, Before and After the McFarland's
Placement in Ready Reserve:
Table 4: Corps and Industry Hopper Dredge Fleets, 2014:
Figures:
Figure 1: Illustration of a Hopper Dredge:
Figure 2: Corps Expenditures for Hopper Dredging and Amount of
Material Removed by Corps and Industry Hopper Dredges, Fiscal Years
2003 through 2012:
Figure 3: Ready Reserve Funding for the Corps Dredges Wheeler and
McFarland, Fiscal Years 2003 through 2012:
Figure 4: Annual Average Number of Industry Bids per Corps
Solicitation and Winning Bid as a Percentage of the Corps' Cost
Estimate, Fiscal Years 2003 through 2012:
Abbreviations:
DCA: Dredging Contractors of America:
[End of section]
United States Government Accountability Office:
GAO:
441 G St. N.W.
Washington, DC 20548:
April 10, 2014:
The Honorable Timothy H. Bishop:
Ranking Member:
Subcommittee on Water Resources and Environment:
Committee on Transportation and Infrastructure:
House of Representatives:
Dear Mr. Bishop:
Maintaining the nation's navigation channels and ports is vital to
U.S. commerce, with nearly $1.8 trillion of import and export cargo
passing through the nation's waterways in 2012. The U.S. Army Corps of
Engineers (Corps) is responsible for dredging--that is, removing
sediment from the bottom of--ports, harbors, and other U.S. waterways
to facilitate their navigation. Vessels called dredges are used to
remove sediment in order to maintain navigation channels at the depths
and widths necessary for shipping. Various types of dredging vessels
exist, each designed to perform in certain conditions or locations.
One type--the hopper dredge--performs much of the dredging work in
ports, harbors, and other waterways exposed to the ocean, where
shipping traffic and operating conditions render the use of other
types of dredges inefficient, impractical, or unsafe. A hopper dredge
vacuums material (e.g., a mixture of sediment and water) into its
"hopper" or containment area, where the material is stored before
being transported to a placement site (see figure 1). In fiscal year
2012, the Corps spent about $370 million for hopper dredging, removing
nearly 72 million cubic yards of material from dozens of ports and
harbors across the country.
Figure 1: Illustration of a Hopper Dredge:
[Refer to PDF for image: illustration]
Source: GAO.
[End of figure]
The Corps carries out hopper dredging using a combination of its own
fleet of dredging vessels and industry vessels operating under
contract, and it is required to do so in the manner most economical
and advantageous to the United States. Until 1978, the Corps performed
all hopper dredging in the United States with its fleet of 14 hopper
dredges. In 1978, legislation directed the Corps to (1) contract out
much of its dredging work to private industry as industry demonstrated
that it could perform the work at reasonable prices and in a timely
manner, (2) reduce the federal hopper fleet as industry demonstrated
its ability to perform, and (3) maintain a minimum fleet of federal
vessels.[Footnote 1] Specifically, the legislation directed the Corps
to retain as much of its fleet as it determined necessary to ensure
that the federal and private industry fleets together could carry out
necessary dredging projects. According to the Corps, the purpose of
the minimum fleet is to diminish risks to navigation by performing
urgent, emergency, or national defense work, or to respond when
industry either does not submit a reasonable bid for dredging
solicitations or does not perform adequately under an existing
contract.[Footnote 2] Over time, the Corps has reduced the size of its
hopper fleet to four vessels: the Essayons, McFarland, Wheeler, and
Yaquina. Generally, Corps district offices, in coordination with Corps
division offices to which the district offices report, are responsible
for managing and contracting for the dredging that occurs within their
districts, under the guidance of Corps headquarters.
Beginning in 1993, Congress began imposing various statutory
restrictions on the operations of certain Corps hopper dredges. For
example, restrictions imposed by the Water Resources Development Act
of 1996 effectively (1) reduced the annual authorized work schedule of
the Essayons, McFarland, and Yaquina and (2) limited the number of
days the Wheeler could be used annually by taking it out of active
status and placing it in "ready reserve"--under which the Corps uses
it primarily for training purposes and calls it into active status
only in limited circumstances, such as urgent and emergency work.
[Footnote 3] According to a House committee report, the restrictions
were intended to further encourage the Corps to contract with private
industry for hopper dredging.[Footnote 4] Over a decade later,
Congress passed the Water Resources Development Act of 2007, which
required that the Corps place the:
McFarland in ready reserve and limited the use of the vessel's
work.[Footnote 5] In contrast, the 2007 act lifted the restrictions
that had been in place on the number of days the Essayons and Yaquina
could work.
In a review we conducted in 2003, we found that the restrictions in
place at that time had imposed costs on the Corps' dredging program
but had not resulted in proven benefits, such as increased industry
competition or lower prices for hopper dredging.[Footnote 6] In our
2003 report, we made three recommendations to the Corps for improving
the information used to manage its hopper dredges and develop cost
estimates for industry contracts. Specifically, we recommended that
the Corps:
* obtain and analyze baseline data needed to determine the appropriate
use of its hopper dredge fleet, such as data on emergency work
performed by the Corps and solicitations that receive no bids;
* assess the data and procedures used to perform the cost estimate
used when contracting dredging work to the hopper dredging industry;
and:
* prepare a comprehensive analysis of the costs and benefits of
existing and proposed restrictions on the use of its hopper dredge
fleet.
The Corps concurred with our recommendations and agreed to implement
them.
You asked us to examine changes to the Corps' hopper dredging program
since our review in 2003. This report examines (1) the actions the
Corps has taken to address our 2003 recommendations for improving the
information needed to manage its hopper dredging program and develop
cost estimates for industry contracts; (2) the effects since 2003, if
any, of the statutory restrictions placed on the use of the Corps'
hopper dredges; and (3) key challenges, if any, the Corps faces in
managing its hopper dredge fleet.
To examine the actions the Corps has taken to address our 2003
recommendations, we reviewed the Corps' process for tracking and
analyzing data on solicitations for private industry hopper dredging
work, several sources of information the Corps maintains on the use of
its hopper dredge fleet, the Corps' 2005 report to Congress on hopper
dredges, and Corps documentation related to developing government cost
estimates. To examine the effects since 2003, if any, of the statutory
restrictions placed on the use of the Corps' hopper dredges, we
analyzed the statutes and regulations governing the use of the Corps'
hopper dredge fleet, reviewed Corps reports and financial data on the
fleet, obtained and reviewed information from the dredging industry on
its fleet of hopper dredges, and analyzed dredging data collected by
the Corps through its Dredging Information System. To assess the
reliability of the data, we interviewed Corps officials who maintain
the database, reviewed related documentation, and tested the data for
missing or erroneous values. We determined that the data we used were
sufficiently reliable for our purposes. To examine key challenges, if
any, the Corps faces in managing its hopper dredge fleet, we reviewed
Corps studies and financial data on its hopper dredge fleet. For all
three objectives, we interviewed officials from Corps headquarters,
division offices, and the 9 Corps district offices with the largest
hopper dredging workload during fiscal years 2003 through 2012 (out of
a total of 17 district offices that contracted with industry for
hopper dredging work during the time period). We also interviewed
representatives from the five dredging companies that own and operate
hopper dredges, and other stakeholders including local pilots'
associations and port authorities from the areas where the Corps'
hopper dredges are stationed, along with their national-level
counterparts. In addition, we visited the Corps' four hopper dredges
and one industry hopper dredge for informational tours of these
vessels to gain a better understanding of their physical
characteristics and operations. Appendix I describes our objectives,
scope, and methodology in greater detail.
We conducted this performance audit from January 2013 to April 2014 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
Since 1824, the Corps has been responsible for maintaining a safe,
reliable, and economically efficient navigation system in the United
States. This system currently comprises more than 12,000 miles of
inland and intracoastal waterways and about 180 ports handling at
least 250,000 tons of cargo per year. The accumulation of sediment in
waterways--known as shoaling--reduces their navigable depth and,
without dredging, may result in restrictions on vessels passing
through the waterways. These restrictions often apply to the vessels'
draft--the distance between the surface of the water and the bottom of
the hull--which determine, in part, the minimum depth of water in
which a vessel can safely navigate. Draft restrictions may result in
delays and added costs as ships may need to off-load some of their
cargo to reduce their draft, wait until high tide or until waterways
are dredged, or sail into another port. For example, according to a
2011 Corps study, 1 foot of shoaling in the lower Mississippi River
could result in $2.8 billion worth of cargo being disrupted annually.
[Footnote 7] To minimize such risks to navigation, the Corps removed
an annual average of about 229 million cubic yards of material from
U.S. waterways from fiscal year 2003 through fiscal year 2012, at an
average annual cost of about $1.1 billion, according to the Corps.
Even with these efforts, draft restrictions have regularly been in
place on major waterways throughout the United States in the past
several years, according to Corps documents and officials.
The Corps contracts with industry to perform most dredging, including
work done by hopper dredges. According to the Corps, of the
approximately $11 billion it spent for dredging from fiscal year 2003
through fiscal year 2012, about $2.37 billion was for hopper dredging.
Of that, industry hopper dredges accounted for about $1.8 billion, and
Corps hopper dredges accounted for about $570 million. Corps spending
on hopper dredging has more than doubled since fiscal year 2003, while
the amount of material removed by hopper dredges has increased only
slightly over that period, according to Corps data. Specifically, as
shown in figure 2, the Corps spent nearly $170 million for Corps and
industry hopper dredges to remove around 66 million cubic yards of
material in fiscal year 2003. By fiscal year 2012, Corps spending on
Corps and industry hopper dredging had increased to about $370
million, while the amount of material removed increased to nearly 72
million cubic yards. This growth in spending reflects costs for hopper
dredging that, according to Corps documents, have increased because of
rising costs for fuel and steel, among other factors.
Figure 2: Corps Expenditures for Hopper Dredging and Amount of
Material Removed by Corps and Industry Hopper Dredges, Fiscal Years
2003 through 2012:
[Refer to PDF for image: multiple line graph]
Fiscal year: 2003;
Corps funding for hopper dredging: $168.43 million;
Cubic yards of material removed by hopper dredges: 66.03 million.
Fiscal year: 2004;
Corps funding for hopper dredging: $160.93 million;
Cubic yards of material removed by hopper dredges: 70.24 million.
Fiscal year: 2005;
Corps funding for hopper dredging: $209.57 million;
Cubic yards of material removed by hopper dredges: 72.80 million.
Fiscal year: 2006;
Corps funding for hopper dredging: $183.80 million;
Cubic yards of material removed by hopper dredges: 53.89 million.
Fiscal year: 2007;
Corps funding for hopper dredging: $184.09 million;
Cubic yards of material removed by hopper dredges: 51.36 million.
Fiscal year: 2008;
Corps funding for hopper dredging: $268.29 million;
Cubic yards of material removed by hopper dredges: 62.95 million.
Fiscal year: 2009;
Corps funding for hopper dredging: $264.42 million;
Cubic yards of material removed by hopper dredges: 82.21 million.
Fiscal year: 2010;
Corps funding for hopper dredging: $265.92 million;
Cubic yards of material removed by hopper dredges: 58.86 million.
Fiscal year: 2011;
Corps funding for hopper dredging: $291.30 million;
Cubic yards of material removed by hopper dredges: 62.62 million.
Fiscal year: 2012;
Corps funding for hopper dredging: $372.75 million;
Cubic yards of material removed by hopper dredges: 71.74 million.
Source: U.S. Army Corp of Engineers.
Note: The Corps' hopper dredging work is funded through the Corps'
annual civil works appropriation and, in most years since 2003,
through supplemental appropriations, such as those for Hurricane
Katrina recovery efforts, the American Recovery and Reinvestment Act,
and other sources.
[End of figure]
Hopper dredging today is generally performed in three regions of the
United States--the East Coast, Gulf Coast, and West Coast--and each
region has at least one Corps hopper dredge that typically operates in
it: the McFarland on the East Coast, the Wheeler on the Gulf Coast,
and the Essayons and Yaquina on the West Coast. On the East and Gulf
Coasts, the majority of the hopper dredging workload is carried out by
industry dredges, while on the West Coast, Corps dredges remove more
than half of the dredged material. Various factors can influence and
complicate hopper dredging in each region. For example, on the East
Coast, much of the hopper dredging must be performed during certain
months of the year because environmental restrictions related to
endangered sea turtles and other species prohibit dredging while those
species are present. On the West Coast, the Corps must factor in the
time and expense of moving industry dredges through the Panama Canal
if the only available industry hopper dredges are on the East or Gulf
Coasts.
The sizes and capabilities of specific hopper dredges--and, therefore,
the projects for which they are suited--vary. For instance, shallow
ports and harbors cannot be dredged by vessels with deep drafts in
many cases. The Corps uses the Yaquina, which is a small dredge with a
draft of around 15 feet when its hopper is fully loaded,[Footnote 8]
for dredging small and shallow ports along the California, Oregon, and
Washington coasts. In contrast, the Corps uses the Wheeler, which is a
large dredge with a draft of nearly 30 feet when its hopper is fully
loaded, for deeper navigation channels such as those in the lower
Mississippi River. See appendix II for a list of Corps and industry
hopper dredges and their characteristics.
As noted, several pieces of legislation were enacted that sought to
increase the role of industry in hopper dredging by placing
restrictions on the use of the Corps' hopper dredges. More
specifically, in 1978, legislation directed the Corps to contract out
much of its hopper dredging work to industry and reduce the Corps'
fleet to the minimum necessary to insure the capability of the federal
government and industry together to carry out projects for the
improvement of rivers and harbors. The Energy and Water Development
Appropriations Act for fiscal year 1993, and subsequent appropriations
acts in the early 1990s, required the Corps to offer for competitive
bidding at least 7.5 million cubic yards of hopper dredging work
previously performed by the federal fleet. The Corps addressed this
requirement by reducing the use of each of its four dredges from about
230 workdays per year to about 180 workdays per year. The Water
Resources Development Act of 1996 then required the Corps to take the
Wheeler out of active status and place it into ready reserve. The
Corps implemented this requirement beginning in fiscal year 1998 by
generally limiting the Wheeler to working 55 days a year plus any
urgent or emergency work. More recently, the Water Resources
Development Act of 2007 required that the Corps place the McFarland in
ready reserve and limited the use of the vessel to 70 working days per
year in the Delaware River and Bay, plus any urgent and emergency
work.[Footnote 9] See table 1 for the statutory restrictions in place
on the use of the Corps' hopper dredges and how they have changed
since fiscal year 2003.[Footnote 10]
Table 1: Statutory Restrictions and Other Information on the Use of
the Corps' Hopper Dredges:
In ready reserve:
McFarland: Yes;
Wheeler: Yes;
Essayons: No;
Yaquina: No.
Current limit on workdays:
McFarland: 70 (in law);
Wheeler: 70;
Essayons: None[A];
Yaquina: None[A].
Activities allowed within the limit:
McFarland: Routine dredging in the Delaware River and Bay to ensure
its ability to perform urgent and emergency work;
Wheeler: Routine dredging to ensure its ability to perform urgent and
emergency work;
Essayons: Not applicable;
Yaquina: Not applicable.
Activities allowed beyond the limit:
McFarland: The Corps can call the dredge out of ready reserve for
urgent or emergency dredging when industry dredges are unavailable;
Wheeler: The Corps can call the dredge out of ready reserve for urgent
or emergency dredging when industry dredges are unavailable;
Essayons: Not applicable;
Yaquina: Not applicable.
Changes since fiscal year 2003:
McFarland: Placed in ready reserve effective December 30, 2009;
Wheeler: Change in workday limit from 55 to 70 effective fiscal year
2008;
Essayons: Removal of workday limit effective fiscal year 2009;
Yaquina: Removal of workday limit effective fiscal year 2009.
Sources: GAO analysis of selected legislation and Corps information.
[A] Restrictions imposed by the Water Resources Development Act of
1996 effectively limited the Essayons and Yaquina to about 180
workdays. The Water Resources Development Act of 2007 lifted these
restrictions and these two vessels resumed operations without
restrictions on October 1, 2008.
[End of table]
The Corps follows a process--known as the raise the flag procedure--
for activating its ready reserve dredges to respond to urgent or
emergency dredging needs. The Corps defines an urgent need for
dredging as a time-sensitive situation that may require prompt action
for providing a safe navigation channel, and an emergency as a
situation that would result in an unacceptable hazard to life, a
significant loss of property, or an immediate, unforeseen, and
significant economic hardship if corrective action is not undertaken
within a time period less than the normal contract procurement
process. The raise the flag procedure includes a series of steps
intended to allow industry the opportunity to respond to urgent or
emergency dredging needs before the Corps uses its own dredges. The
Corps district office with an urgent or emergency dredging need
notifies the Corps division office overseeing it of the dredging need,
and district and division staff review ongoing hopper dredging work
under existing Corps contracts to see if any industry hopper dredges
could be made available. If no industry hopper dredges could be made
available, the offices notify Corps headquarters. The Corps' Director
of Civil Works may then decide whether to use one of the Corps' ready
reserve hopper dredges or make additional efforts to procure an
industry dredge, such as by releasing a dredge from an existing
contract.
The Corps contracts for most of the hopper dredging work by soliciting
competitive bids from industry. To determine the reasonableness of
contractor bids, the Corps develops a government cost estimate for its
hopper dredging solicitations. Government cost estimates are developed
using information on the costs of owning and operating hopper dredges--
including acquisition, fuel, and shipyard costs--along with
information on the project for which the dredging is needed--including
the amount and type of material to be removed, and the distance from
the dredging site to the placement site. In soliciting bids from
contractors, the Corps most commonly uses a sealed-bid process,
through which it generally awards the contract to the lowest bidder
with a bid that is no more than 25 percent above the government cost
estimate.[Footnote 11] If the Corps does not receive any bids or if
all bids exceed the government cost estimate by more than 25 percent,
the Corps may pursue a number of options, including (1) negotiating
with bidders to get the bid within an awardable range of the cost
estimate; (2) reviewing the cost estimate and revising it based on
additional information, as appropriate, or (3) performing the work
itself such as through its raise the flag procedure.
The costs to own and operate hopper dredges include costs such as
payroll for the crews, fuel, repairs, and depreciation. Hopper
dredging requires large capital outlays--a modern hopper dredge
comparable in size to the Wheeler, for instance, would cost around
$100 million to build, according to Corps and industry estimates--and
related costs such as depreciation and replacement of engines or other
major equipment can represent a relatively large portion of the
dredges' total costs. The Corps and industry incur much of the costs
for their hopper dredges--such as paying a crew and keeping engines
and other systems in ready working condition--regardless of how much
the dredges are used.
The Corps uses two funding sources from its annual civil works
appropriation to pay for its hopper dredges. First, for the ready
reserve vessels McFarland and Wheeler, funds are provided for each
dredge to cover their costs while they are idle in ready reserve.
Second, the Corps pays for the use of its dredges with project funds
based on a daily rate it establishes for its dredges. According to
Corps officials, the Corps sets a daily rate specific to each of its
hopper dredges at least annually, based on factors such as the costs
of owning and operating the dredge, and the amount of work the dredge
is expected to perform. As the Corps uses its hopper dredges for
projects, the Corps uses funds allocated for those specific projects
to pay its dredges, based on the number of days its dredges work and
the dredges' daily rate.
The Corps Has Taken Actions to Address Our 2003 Recommendations but
Does Not Collect All of the Recommended Data:
Since our 2003 review,[Footnote 12] the Corps has taken actions to
address our recommendations for improving the information needed to
manage its hopper dredging program and develop cost estimates for
industry contracts, but some data gaps remain. First, the Corps
collects data on urgent or emergency hopper dredging work but does not
consistently collect the data that we recommended on solicitations
that received no bids or where all the bids received exceeded the
Corps' cost estimate by more than 25 percent. Second, the Corps
assessed the data and procedures for performing the cost estimates it
uses when soliciting industry contracts in response to our
recommendation, but the Corps has not obtained updated data for some
costs used in these estimates. Third, in response to our
recommendation to prepare an analysis of the costs and benefits of
existing and proposed restrictions on the use of its hopper dredge
fleet, the Corps developed a report analyzing options on how to best
maintain and operate its fleet.
The Corps Collects Recommended Data on Urgent or Emergency Dredging
but Does Not Consistently Collect Data on Certain Solicitations:
In response to our 2003 recommendation to obtain and analyze baseline
data needed to determine the appropriate use of its hopper dredge
fleet, the Corps established a tracking log as part of its raise the
flag procedure to maintain and review urgent or emergency work its
hopper dredges carry out, but it does not consistently collect certain
solicitation information that we recommended. Having a means to track
urgent or emergency dredging work helps the Corps ensure it is
documenting and evaluating when and under what circumstances it will
use its ready reserve dredges. According to Corps officials, the Corps
established a tracking log in 2007 to systematically track information
on the circumstances when urgent or emergency hopper dredging may be
needed, and specifically when Corps' dredges would be used to meet
those needs. Corps district offices that are faced with critical
hopper dredging needs submit information on their plans to address the
needs to their division and Corps headquarters for review and
approval. The Corps' decision-making process for determining whether
to use its ready reserve vessels is also documented via its tracking
log. For example, in January 2013, a hopper dredge was needed to
perform work along the North Carolina coast because certain areas had
become severely shoaled and were impeding safe navigation. One
industry bid was received to perform the work, but it exceeded the
government cost estimate by more than 25 percent. After determining
its cost estimate was reasonable, the Corps negotiated with the
industry bidder in an attempt to get the bid within an awardable range
of the Corps' cost estimate, but the parties were unable to come to an
agreement. As a result, the Corps initiated its raise the flag
procedure because of the urgent nature of the situation. Because no
other industry contractors were available immediately to respond, the
Corps used the McFarland to perform the dredging and documented its
decision-making process in its tracking log.
We also recommended that the Corps obtain and analyze other data that
could be useful in determining the appropriate use of the Corps'
hopper dredges, including data on solicitations that receive no bids
or where all the bids received exceeded the Corps' cost estimate by
more than 25 percent. Corps officials we spoke with said that they are
aware when a no-bid or high-bid situation occur, particularly when
they use a Corps dredge through their raise the flag procedure because
of such a situation. But by tracking and analyzing no-bid and high-bid
solicitation data, the Corps may be better positioned to identify gaps
in industry's ability to fulfill certain dredging needs--such as
during certain times of the year, in particular geographic areas, or
for particular types of projects--and avoid or address any gaps
identified. In 2004, the Corps took steps to address our
recommendation by modifying data fields in its dredging database, the
Corps' database for maintaining dredging information on each of its
dredging projects, to collect data on no-bid and high-bid
solicitations. We found, however, that data for these solicitations
were not consistently entered into the database across the Corps
district offices responsible for entering it. In our review of the
Corps' dredging database, we found that one district office entered
data on no-bid and high-bid solicitations. Corps officials from
several district offices told us that entering information into the
database is tedious and time-consuming. They also indicated that they
do not enter information for all data fields because the officials
primarily use information from the database for planning and
scheduling future dredging work, not for reviewing data on past
solicitations or solicitations that did not result in an awarded
contract, which would include no-bid and high-bid solicitations.
Corps headquarters officials we spoke with recognized that tracking
and analyzing data on no-bid and high-bid solicitations is important
and could serve as a useful decision-making tool in planning future
hopper dredging work. However, they have not provided written
direction to the district offices to help ensure data on these
solicitations are consistently entered into the database. According to
officials we spoke with, they have not done so because of other higher-
priority action items. The officials added that they have made efforts
to ensure district offices consistently enter accurate and complete
data into the dredging database, such as emphasizing this activity
during periodic meetings with district offices. These outreach efforts
have been targeted at entering data into the dredging database as a
whole, however, and have not focused specifically on the importance of
the data field for tracking no-bid or high-bid solicitations,
according to the officials. Federal internal control standards state
that management should develop written policies and procedures that
staff are to follow as intended.[Footnote 13] Without complete data on
no-bid and high-bid solicitations, the Corps may be missing
opportunities to plan future hopper dredging work that identifies and
addresses potential gaps in industry's ability to fulfill certain
dredging needs based on this solicitation information.
The Corps Reviewed Data and Procedures for Performing Cost Estimates,
but Some Information Remains Outdated:
In response to our recommendation to assess the data and procedures
used to perform the cost estimate used when contracting dredging work
to the hopper dredging industry, the Corps took several actions to
improve its cost estimates, but some of the information it relies on
remains outdated, such as its dredge equipment cost information dating
back to the late 1980s.[Footnote 14] In 2004, and again in 2008, the
Corps took actions to evaluate and update certain cost data used in
its cost estimates. In 2004, the Corps prepared an internal document
that summarized the steps it took to analyze, evaluate, and update
certain cost data used in its cost estimates. For example, according
to the document, the Corps examined repair and maintenance costs for
industry hopper dredges and updated some data for dredge engines. In
2008, the Corps partnered with the Dredging Contractors of America
(DCA)--a national association for the dredging industry--to update
industry cost data. Corps documentation related to the effort
indicated that the Corps learned important information through
discussions with industry, and a senior Corps cost-estimating official
that we spoke with said that, on the basis of these discussions, the
Corps updated the training it provides to Corps staff on preparing
hopper dredge cost estimates.
Some of the data the Corps uses in preparing its hopper dredging cost
estimates, however, remain outdated despite the Corps' attempt to
update the information. Specifically, the Corps has not obtained
updated technical data on industry hopper dredge equipment or labor
rates but instead is relying on outdated information, some of which
dates back to the late 1980s. During efforts to update the Corps' cost-
estimating data in 2008, the Corps prepared a survey to collect
industry dredge equipment information from the five dredging companies
that owned hopper dredges. In cooperation with the Corps, DCA sent the
survey to the companies. In the August 2008 letter accompanying the
survey, the dredging association stated that "much of the cost basis
the Corps uses for industry dredges is old data and limited due to
lack of industry input" and noted that the Corps' ability to obtain
the data would be mutually beneficial to the companies and the Corps.
Among other things, data the survey sought to collect included costs
of dredge acquisition, capital improvements, and certain types of
repairs. Efforts to obtain these data were unsuccessful, however, due
in part to industry's concerns about sharing business-sensitive data
with the Corps. Industry representatives from one hopper dredging
company we spoke with explained that they were concerned that cost
data provided to the Corps might become accessible to their
competitors and therefore the data were not provided. A senior Corps
cost-estimating official we spoke with told us that the Corps limits
the release of cost data used in preparing cost estimates within the
Corps and that updated industry cost data would assist the Corps in
preparing its cost estimates for hopper dredge work. The official also
stated that other efforts could be made to obtain updated cost data,
including performing a Corps-wide study to evaluate information from
each Corps district office with hopper dredging contracts or reviewing
contract audits. The Corps, however, has no plans for conducting such
a study. In conducting a study, the Corps could assess the most
effective and efficient approach for obtaining updated cost data,
including examining whether and to what extent it would base its study
approach on a review of contracts or contract audits, working directly
with industry, or other approaches. Federal internal control standards
state the need for federal agencies to establish plans to help ensure
goals and objectives can be met.[Footnote 15] A written plan would
assist the Corps in obtaining updated cost data and following sound
cost estimating practices, as described in our 2009 cost estimating
and assessment guide, which is a compilation of cost-estimating best
practices drawn from across government and industry.[Footnote 16]
Obtaining reliable and up-to-date data are important for developing
sound cost estimates, and the Corps' cost estimate credibility may
suffer if technical data are not updated and maintained, as noted in
our cost estimating guide.
The Corps Analyzed Options for Operating Its Hopper Dredges in a
Report to Congress:
In response to our 2003 recommendation that the Corps prepare a
comprehensive analysis of the costs and benefits of existing and
proposed restrictions on the use of the Corps' hopper dredge fleet,
the Corps prepared an analysis of its fleet for a 2005 report to
Congress.[Footnote 17] In its report, the Corps analyzed a number of
options for operating its hopper dredges and made a recommendation to
Congress for adjusting its fleet based on costs and benefits outlined
in its analysis. The Corps recommended an option that it said would,
among other things, ensure there was a viable reserve capability ready
to respond to unforeseen requirements and ensure the timely
accomplishment and reasonable cost for federal projects requiring
hopper dredges. Under the option it recommended, the Corps would have
(1) increased the Essayons's dredging by about 35 days, and kept the
Yaquina's dredging days the same; (2) continued to keep the Wheeler in
ready reserve; and (3) retired the McFarland. The Water Resources
Development Act of 2007 did not specifically address these
recommendations, but instead placed the McFarland in ready reserve and
removed the then-existing restrictions on the Essayons and Yaquina.
Statutory Restrictions on Corps Hopper Dredges Have Resulted in
Additional Costs to the Corps, but Effects on Industry Competition Are
Unclear:
Since 2003, statutory restrictions on the use of the Corps' hopper
dredges have resulted in additional costs, but it is unclear whether
the restrictions have affected competition in the hopper dredging
industry.[Footnote 18] Restrictions effectively limiting the number of
days that Corps dredges can work have resulted in additional costs to
the Corps, such as costs to maintain the ready reserve vessels while
idle. On the other hand, the restrictions help ensure the Corps'
ability to respond to urgent and emergency dredging needs when
industry dredges may be unavailable. The extent to which restrictions
on the use of the Corps' hopper dredges have affected competition in
the dredging industry--as measured by the number of companies with
hopper dredges and the number of bidders and winning bid prices for
Corps projects--is unclear, based on our analysis of data on industry
bids per Corps solicitation and other factors.
Statutory Restrictions Have Resulted in Additional Costs for Corps
Hopper Dredging:
Since 2003, statutory restrictions on the use of the four Corps'
hopper dredges--in particular, the Wheeler and the McFarland--have
resulted in additional costs to the Corps. First, the vessels have
needed annual funding to maintain them in ready reserve because, given
their limited use, the Corps is unable to recoup their costs with
revenues from dredging work. The Corps incurs many of the costs for
its hopper dredges--such as paying a crew and keeping engines and
other systems in ready working condition--regardless of how much the
dredges are used. For instance, placing the McFarland in ready reserve
resulted in a substantial decrease in its dredging work (as measured
in days worked and amount of material removed) but a relatively small
decrease in its operating costs. As shown in table 2, the average
annual cubic yards of material removed by the McFarland declined by 60
percent, while its average annual operating costs declined by 16
percent.[Footnote 19]
Table 2: Summary of Operations and Cost Data for the Corps Dredge
McFarland:
Operations and cost data: Average days worked;
Before ready reserve (fiscal years 2008 and 2009)[A]: 144;
After ready reserve (fiscal years 2011 and 2012)[A]: 85;
Percentage change: -41%.
Operations and cost data: Average cubic yards of material removed;
Before ready reserve (fiscal years 2008 and 2009)[A]: 1,706,570;
After ready reserve (fiscal years 2011 and 2012)[A]: 685,957;
Percentage change: -60%.
Operations and cost data: Average operating cost;
Before ready reserve (fiscal years 2008 and 2009)[A]: $9,208,887;
After ready reserve (fiscal years 2011 and 2012)[A]: $7,766,939;
Percentage change: -16%.
Operations and cost data: Labor costs;
Before ready reserve (fiscal years 2008 and 2009)[A]: $4,420,847;
After ready reserve (fiscal years 2011 and 2012)[A]: $3,919,780;
Percentage change: -11%.
Operations and cost data: Fuel, lubricants, and water costs;
Before ready reserve (fiscal years 2008 and 2009)[A]: $2,545,462;
After ready reserve (fiscal years 2011 and 2012)[A]: $1,677,801;
Percentage change: -34%.
Operations and cost data: Other operating costs[B];
Before ready reserve (fiscal years 2008 and 2009)[A]: $2,242,578;
After ready reserve (fiscal years 2011 and 2012)[A]: $2,169,358;
Percentage change: -3%.
Source: GAO analysis of U.S. Army Corps of Engineers data.
Note: All cost amounts are in constant 2013 dollars. Hopper dredges in
ready reserve are used primarily for training purposes and can be
called into active status only in limited circumstances, such as
emergencies.
[A] The McFarland was placed in ready reserve on December 30, 2009.
Therefore, the period before ready reserve includes the 2 full fiscal
years prior to ready reserve--2008 and 2009--while the period after
ready reserve includes the 2 full fiscal years following ready reserve-
-2011 and 2012. Limiting the period before ready reserve to 2 fiscal
years reduced the effect of long-term changes, such as increasing fuel
prices, on the McFarland's costs prior to ready reserve.
[B] Other operating costs include overhead, crew training, and
information technology services, among others.
[End of table]
Annual funding needed to maintain the Wheeler and the McFarland in
ready reserve, which is provided through the Corps' civil works
appropriation, has increased since 2003. Specifically, in fiscal year
2003, ready reserve funding for the Wheeler was $7.6 million, and it
increased to $13.6 million in fiscal year 2012. In addition, the
McFarland has received ready reserve funding of over $11 million each
fiscal year since it was placed in ready reserve, resulting in total
ready reserve funding for the vessels of over $25 million in fiscal
year 2012 (see figure 3).
Figure 3: Ready Reserve Funding for the Corps Dredges Wheeler and
McFarland, Fiscal Years 2003 through 2012:
[Refer to PDF for image: vertical bar graph]
Fiscal year: 2003;
Wheeler: $7,614,016.
Fiscal year: 2004;
Wheeler: $7,475,000.
Fiscal year: 2005;
Wheeler: $7,589,000.
Fiscal year: 2006;
Wheeler: $7,915,000.
Fiscal year: 2007;
Wheeler: $8,000,000.
Fiscal year: 2008;
Wheeler: $7,478,000.
Fiscal year: 2009;
Wheeler: $10,916,220.
Fiscal year: 2010;
McFarland[A]: $11,289,960;
Wheeler: $11,289,960.
Fiscal year: 2011;
McFarland[A]: $11,776,463;
Wheeler: $11,855,897.
Fiscal year: 2012;
McFarland[A]: $11,642,400;
Wheeler: $13,639,874.
Source: U.S. Army Corps of Engineers.
Note: Hopper dredges in ready reserve are used primarily for training
purposes and can be called into active status only in limited
circumstances, such as emergencies.
[A] The McFarland was placed in ready reserve on December 30, 2009,
and it began receiving ready reserve funding in fiscal year 2010.
[End of figure]
Second, the ready reserve restrictions have contributed to increases
in the daily rate the Corps charges projects for use of the Wheeler's
service, and future increases in the McFarland's daily rate may also
be needed if it experiences unanticipated cost increases.[Footnote 20]
Increases in daily rates may result in either increasing costs, fewer
cubic yards of material removed, or both, for the projects that use
the Wheeler and McFarland --primarily projects in the Delaware River
and the Mississippi River mouth, respectively. Officials from Corps
headquarters and district offices responsible for the ready reserve
hopper dredges told us they set the dredges' daily rates in part based
on how many days they expect the dredges to work in the coming year
and that, in the case of the Wheeler, the limited dredging days since
being placed in ready reserve have contributed to higher daily rates.
For instance, the Wheeler's daily rate has increased from $75,000 in
fiscal year 2003 to $140,000 in fiscal year 2012, and the Corps
expects a rate of $165,000 during fiscal year 2014. Furthermore,
although costs for industry hopper dredge work have also increased,
officials from a Corps district office that historically used the
Wheeler told us that they would now be reluctant to use the vessel
instead of an industry hopper dredge because of its high daily rate.
In the case of the McFarland, the Corps has increased the vessel's
daily rate from $94,000 in fiscal year 2009 (the last full fiscal year
before it was placed in ready reserve) to $100,000 in fiscal year
2012, and officials said they planned to increase and then maintain
the daily rate at $110,000 for the next several fiscal years. If there
are unanticipated increases in costs for the McFarland, however, such
as an unexpected increase in repair costs, Corps officials said they
would likely have to increase the vessel's daily rate to cover such
costs. As the officials explained, they set the McFarland's daily rate
with an expectation that the vessel will work 70 days because the
ready reserve restrictions do not allow them to increase the number of
days the McFarland can work. Therefore, raising the vessel's daily
rate would be the Corps' primary option to cover an increase in costs.
On the West Coast, restrictions on the number of days the Corps'
hopper dredges Essayons and Yaquina could work had led to
inefficiencies in completing their work before those restrictions were
lifted by the Water Resources Development Act of 2007, according to
Corps officials. Before the 2007 act, the Essayons and the Yaquina
were restricted to working about 180 workdays annually and, for
several years, they reached their operating limits and, therefore, had
to return to port before the projects they were working on were
finished. The dredges were then sent back to complete the projects
once the new fiscal year began, which was in October when weather
conditions had begun to deteriorate. As a result, the Corps incurred
additional transit and payroll costs while returning to complete the
projects. Since the restrictions on these dredges were removed under
the 2007 act, Corps officials said they have not had to interrupt
ongoing work due to operating limits on the dredges and have had
greater flexibility regarding when to perform work.
Ready Reserve Restrictions Help Ensure the Corps' Ability to Respond
to Critical Dredging Needs:
The ready reserve restrictions on the Wheeler and McFarland help
ensure that they are available to the Corps for responding to urgent
and emergency dredging needs, especially in the regions where the
dredges are stationed. Demand for hopper dredging often varies
substantially from year to year, and month to month, due in part to
severe weather events such as hurricanes and floods, other events such
as the Deepwater Horizon oil spill in 2010, or environmental
restrictions that limit dredging work to certain months of the year.
This variability has resulted in periods of high demand during which
the Corps has used its ready reserve hopper dredges to respond to
urgent or emergency dredging needs when industry hopper dredges were
not available. As the Corps noted in its 2005 report to Congress,
having the Wheeler in ready reserve is important to ensure that the
vessel is available when unforeseen dredging needs occur, while more
fully utilizing the Wheeler could limit the Corps' capability to
respond to peak workload demands.[Footnote 21] Specifically, the Corps
has used the Wheeler to respond to urgent or emergency dredging needs
15 times during fiscal years 2003 through 2012.[Footnote 22] In these
cases, according to Corps documents, industry dredges were unavailable
to immediately respond to time-sensitive dredging needs at the mouth
of the Mississippi River, and the Corps was able to quickly move the
Wheeler to the site and conduct the work. Similarly, local pilots and
a local port authority we spoke with told us that the McFarland has
been critical in addressing dredging needs on the Delaware River and
Bay, where the vessel is stationed in ready reserve. Since its
placement in ready reserve at the end of 2009, the Corps has used the
McFarland to respond to urgent or emergency needs 4 times. Industry
representatives from most dredging companies we spoke with agreed that
there is a need for Corps hopper dredges, specifically those placed in
ready reserve, to respond to urgent or emergency situations when
industry hopper dredges are unavailable.
The Extent to Which Restrictions Have Affected Industry Competition Is
Unclear:
Since 2003, the extent to which restrictions on the use of the Corps'
hopper dredges have affected competition in the dredging industry--as
measured by the number of companies with hopper dredges and the number
of bidders and winning bid prices for Corps projects--is unclear. A
possible benefit of restrictions on the amount of work performed by
the Corps' hopper dredges is that the increased demand for industry
hopper dredging services could encourage existing firms to add
dredging capacity or new firms to enter the market, which could
promote competition, raising the number of bidders and lowering
winning bid prices for hopper dredging contracts. In addition,
according to dredging industry representatives we spoke with, the more
industry dredges can be utilized instead of Corps dredges, the lower
the contract prices will be because contractors can spread their costs
over more days of operation. However, on the basis of our analysis of
(1) the dredging industry, (2) the number of bidders and bid prices
for Corps dredging contracts, and (3) other factors that may have
affected the level of competition for hopper dredging contracts, it is
unclear whether or to what extent the restrictions on the Corps'
hopper dredges may have increased the level of competition in the
hopper dredging industry.
First, since 2003, the number of companies with hopper dredges in the
United States has not changed, although the number of industry hopper
dredges and the total size of these dredges have decreased.
Specifically, at the end of 2013, five companies operated one or more
hopper dredges. The same number of companies operated hopper dredges
in 2003. Of the five companies we reported on in 2003, two sold their
hopper dredges and exited the hopper dredging market while two new
companies that had not been in the market acquired hopper dredges, and
three companies remained the same. Since 2003, the total number of
industry vessels decreased from 16 to 13, and the total capacity of
these vessels, as measured in cubic yards, decreased by 16 percent.
The decrease from 16 to 13 vessels resulted from one company
relocating four of its U.S. hopper dredges overseas to perform
dredging work primarily in the Middle East,[Footnote 23] while another
company built a new hopper dredge for the U.S. market. In addition, as
of January 2014, one company had begun building a new hopper dredge
that it expects will be completed in late 2014 or early 2015, and
another company announced plans to build a new hopper dredge that it
expects will be completed in 2015. If no companies remove existing
hopper dredges from the U.S. market, these two dredges, if built as
planned, would increase total industry capacity to 13 percent above
2003 levels. According to industry representatives with whom we spoke,
dredging companies consider restrictions on the Corps' hopper dredges
in deciding whether to acquire or build a new hopper dredge, but they
also consider other factors, such as anticipated funding levels by the
Corps, as well as nonfederal work.
Second, we did not find evidence of increased competition based on the
number of bidders and winning bid prices for Corps hopper dredging
projects since 2003. Economic principles suggest that an increase in
the number of competitive bidders in the market should lead to lower
prices. The correlation between the number of companies competing for
hopper dredging contracts and the winning bid prices for those
contracts is demonstrated by the Corps' historical data.[Footnote 24]
As shown in figure 4, in years where there were more industry bids per
Corps solicitation, the average winning industry bid, as a percentage
of the Corps' cost estimate, was generally lower, consistent with
economic principles.[Footnote 25]
Figure 4: Annual Average Number of Industry Bids per Corps
Solicitation and Winning Bid as a Percentage of the Corps' Cost
Estimate, Fiscal Years 2003 through 2012:
[Refer to PDF for image: plotted point graph]
2003:
Average number of bids per Corps solicitation: 2.27;
Winning bid as a percent of Corps' cost estimate: 89.19%.
2004:
Average number of bids per Corps solicitation: 3.80;
Winning bid as a percent of Corps' cost estimate: 74.72%.
2005:
Average number of bids per Corps solicitation: 3.33;
Winning bid as a percent of Corps' cost estimate: 85.42%.
2006:
Average number of bids per Corps solicitation: 3.00;
Winning bid as a percent of Corps' cost estimate: 93.31%.
2007:
Average number of bids per Corps solicitation: 2.33;
Winning bid as a percent of Corps' cost estimate: 94.99%.
2008:
Average number of bids per Corps solicitation: 2.30;
Winning bid as a percent of Corps' cost estimate: 94.51%.
2009:
Average number of bids per Corps solicitation: 1.69;
Winning bid as a percent of Corps' cost estimate: 112.15%.
2010:
Average number of bids per Corps solicitation: 2.41;
Winning bid as a percent of Corps' cost estimate: 96.06%.
2011:
Average number of bids per Corps solicitation: 2.40;
Winning bid as a percent of Corps' cost estimate: 89.3%.
2012:
Average number of bids per Corps solicitation: 2.77;
Winning bid as a percent of Corps' cost estimate: 93.55%.
Source: GAO analysis of U.S. Army Corp of Engineers data.
Note: Each point represents a fiscal year. We limited this analysis to
awarded, sealed-bid solicitations because those are the solicitations
for which the Corps has reliable data on numbers of bids and bid
prices. We also limited the analysis to maintenance projects because,
according to Corps officials and industry representatives, new
construction projects are inherently uncertain and, therefore, new
construction cost estimates and bid prices have greater variation and
less accuracy than those for maintenance projects, which tend to occur
regularly and have a history of price information.
[End of figure]
Moreover, available Corps data related to the placement of the
McFarland in ready reserve do not show evidence of increased
competition in the dredging industry. Specifically, as shown in table
3, after the McFarland was placed in ready reserve, average winning
bid prices increased for East Coast maintenance projects (i.e.,
projects the McFarland might undertake if use of the vessel were not
restricted), and the average number of bids for those same projects
decreased slightly.[Footnote 26]
Table 3: Winning Bid Prices and Number of Bids for East Coast
Maintenance Hopper Dredging Projects, Before and After the McFarland's
Placement in Ready Reserve:
Winning bid as a percentage of Corps' cost estimate;
Before ready reserve (fiscal years 2003 through 2009): 84 percent;
After ready reserve (fiscal years 2011 and 2012)[A]: 92 percent.
Average number of bids per solicitation;
Before ready reserve (fiscal years 2003 through 2009): 2.9;
After ready reserve (fiscal years 2011 and 2012)[A]: 2.8.
Source: GAO analysis of U.S. Army Corps of Engineers data.
Note: We limited this analysis to awarded, sealed-bid solicitations
because those are the solicitations for which the Corps has reliable
data on numbers of bidders and bid prices. In sealed bidding, a
contract is awarded to the responsible bidder with a bid that conforms
to the invitation for bid and is the most advantageous for the
government considering price and price-related factors included in the
invitation. Approximately 76 percent of hopper dredging contracts
awarded by the Corps from fiscal year 2003 through fiscal year 2012
were awarded through a sealed-bid process. We also limited the
analysis to maintenance projects, because Corps dredges do not
generally perform other types of projects such as new construction
and, therefore, restrictions on Corps dredges would not have had an
effect on industry competition for such projects.
[A] The period after ready reserve includes the 2 full fiscal years
following the McFarland's placement in ready reserve on December 30,
2009.
[End of table]
Third, other factors aside from the ready reserve restrictions may
have affected the level of competition in the dredging industry since
2003. Examples of such factors include the following:
* Environmental restrictions. Multiple Corps officials and industry
representatives told us that environmental restrictions related to
endangered sea turtles and other species--which prohibit dredging
during the time of year that those species are present--have
contributed to fewer bidders for hopper dredging projects,
particularly on parts of the East Coast. For instance, because of
environmental restrictions, navigation dredging in fiscal year 2014 is
limited to December 15, 2013, through March 31, 2014, in much of the
Corps' South Atlantic Division,[Footnote 27] during which time there
are 48 potential Corps dredging projects planned, according to a 2013
Corps planning document. Corps officials attributed the absence of
awardable bids for several recent East Coast hopper dredging
solicitations to the unavailability of industry hopper dredges when
the projects were scheduled to occur--during the period of high demand
for hopper dredges caused by environmental restrictions. In addition,
they expressed concern that similar shortages of bids could occur in
the future.
* Coordination among Corps district offices. Increased coordination in
scheduling hopper dredging projects across Corps district offices has
helped distribute projects more evenly over time so that more
companies had hopper dredges available with which to bid on projects,
according to Corps officials. In contrast, when a large number of
projects occur at the same time, dredging companies may not have
enough dredges available to bid on all projects, thereby reducing the
number of bidders for the projects. According to Corps officials we
spoke with, increased regional coordination and sharing of up-to-date
information on upcoming dredging needs across district offices has
helped the Corps to better inform industry of planned work and align
the scheduling of projects with the availability of industry dredges.
In particular, Corps officials said increased coordination helped the
Corps avoid scheduling too many projects simultaneously during a
period of increased demand for hopper dredging work following
Hurricane Sandy and a Gulf Coast rebuilding effort to protect against
the coastal impacts of oil spills.
* Demand for nonfederal hopper dredging work. Corps officials and
industry representatives also told us that demand for hopper dredging
work from states, private sources, and foreign governments has reduced
the number of industry hopper dredges available for Corps projects.
For instance, following the Deepwater Horizon oil spill in 2010, there
was an increase in private and state funding for hopper dredge work to
construct barrier islands to protect the coastline from the effects of
the oil spill. Demand for hopper dredges for this work affected the
dredges' availability for Corps navigation projects, according to
Corps documents and officials, and industry representatives. In
addition, representatives from one company said that, in part, because
of increasing demand for hopper dredges from foreign governments--
specifically in the Middle East--the company relocated several hopper
dredges overseas, removing them from the U.S. market.
* Differences in hopper dredge capabilities. Because there are
important variations in the size and capabilities of hopper dredges,
the requirements of specific dredging projects can result in a limited
number of dredges that may be able to effectively compete for a
particular dredging project. For instance, the state of California
requires hopper dredges to use reduced-emissions engines, in
accordance with state air quality regulations. Of the 13 industry
hopper dredges, only 3 have such engines, according to a Corps
official. Similarly, according to Corps documents, a hopper dredge
working at the mouth of the Columbia River in Oregon must be able to
dredge against strong currents and endure large waves--capabilities
that less than half of the industry fleet possesses, according to a
Corps official. Other requirements, such as the depth of the waterway
being dredged, or whether the material removed needs to be pumped onto
the shore, can also limit which dredges can effectively compete for
and carry out the work.
The Corps Faces Challenges Regarding the Fiscal Sustainability and the
Future Composition of Its Hopper Dredge Fleet:
Key challenges the Corps faces in managing its hopper dredge fleet are
(1) ensuring the fiscal sustainability of its hopper dredges and (2)
making decisions about the future of its hopper fleet composition,
including the utilization of its existing fleet, changes to its
existing fleet--including repairs, and the replacement or retirement
of any vessels--and the utilization of any new replacement vessels.
The Corps Faces Challenges in Ensuring the Fiscal Sustainability of
Its Hopper Dredges:
The Corps faces challenges in ensuring the fiscal sustainability of
its hopper dredges. In a 2012 study the Corps conducted on the fiscal
condition of its hopper dredges, it identified increasing ownership
and operating costs for its four hopper dredges, among other things,
as a cause for concern and stated that the dredges would become
unaffordable unless actions were taken.[Footnote 28] For instance, the
Corps' study projected that, in fiscal year 2012, the Corps' total end
of fiscal year account balance for its four hopper dredges would
exceed their funding levels by over $15 million dollars, and that
fiscal problems would continue for the four hopper dredges through
fiscal year 2016. The Corps stated in the study that it was concerned
that project funding, which the Corps' hopper dredges depend on to
varying degrees, was not increasing and, in some cases, was decreasing.
The Corps' 2012 study identified several actions to take to operate
all of its hopper dredges with a positive account balance by the end
of fiscal year 2015. For example, based on the study, a corresponding
July 2012 implementation memorandum, and our discussions with Corps
officials, the Corps:
* increased the daily rates all four of the Corps' hopper dredges
charge to projects that use the dredges, beginning in fiscal year 2012;
* increased funding in fiscal years 2013 and 2014 budgets for projects
that use its hopper dredges to compensate for the vessels'
corresponding increases in daily rates; and:
* formed a team to conduct a hopper dredge operating cost review
including, among other things, an evaluation of the affordability of
two hopper dredges, the Wheeler and the Yaquina, by June 30, 2014.
[Footnote 29]
Corps officials told us that the actions identified in its study will
help return the Corps' hopper dredges to a fiscally sustainable
position by the end of fiscal year 2015. Since the Corps prepared its
study, however, two of its hopper dredges encountered problems that
significantly increased the dredges' total deficit: the Essayons had a
dredging accident in 2013, and the Wheeler experienced an unforeseen
delay in completing its engine replacement.[Footnote 30] Even with
these added costs, Corps officials said they expect to be able to
reach their goal of returning each of the hopper dredges to fiscal
sustainability by the end of fiscal year 2015, but they also
acknowledged that this goal has become more challenging. For example,
the officials said that, while the Essayons' accident increased its
deficit by about $2 million, increasing the vessel's daily rate in
fiscal year 2014 and dredging work in fiscal years 2014 and 2015 would
give the vessel a positive account balance. Corps officials
acknowledged that the Wheeler's situation was more precarious because
it ended fiscal year 2013 with a deficit of over $5 million more than
projected in the Corps' 2012 study, given the engine replacement
delay. To get the Wheeler to a positive account balance by the end of
fiscal year 2015, Corps officials said that they anticipated
increasing the Wheeler's daily rate and potential dredging activity to
more than 70 days under ready reserve in fiscal year 2014. Corps
officials said they believe they have some flexibility with the number
of days the vessel can dredge since there is not a set amount
specified in statute.[Footnote 31] Corps officials stated they are not
planning further actions beyond those identified in the 2012 study at
this time, but they acknowledged that additional measures, such as
pursuing a permanent increase in the amount of days that the Wheeler
may dredge each year under ready reserve, might be warranted if the
vessel's fiscal situation does not improve by the end of fiscal year
2014.
The Corps Faces Challenges in Determining the Future Composition of
Its Hopper Dredge Fleet:
The Corps also faces challenges in making decisions about the future
composition of its hopper dredge fleet. Some of the factors that make
it difficult for the Corps to determine what composition of its fleet
would best allow it to conduct dredging activities in the manner most
economical and advantageous to the United States include the following:
* Aging Corps' fleet. The aging of the Corps' hopper fleet, contrasted
with the millions of dollars the Corps has invested to upgrade the
vessels, has made it challenging for the Corps to determine the long-
term sustainability of its hopper dredges. Three of the Corps' four
hopper dredges--Essayons, Wheeler, and Yaquina--have been in service
for at least 30 years, and the McFarland has been in service over 45
years. According to Corps documentation, the Corps plans a 50-year
investment life for its hopper dredges and, based on historical
records, major repairs are typically needed when a dredge is about 30
years old. Since 2009, the Corps has invested millions of dollars in
replacing and upgrading needed equipment on its four hopper dredges.
For example, among other things, the Essayons, Wheeler, and Yaquina
all had their engines replaced within the last 5 years allowing them
to meet higher air quality emission standards. Similarly, the
McFarland's electrical systems were replaced in fiscal year 2011,
which increased the vessel's efficiency, since many of the systems
were original equipment. According to Corps documents and officials,
overall, all four hopper dredges are in good operating condition, but
given the age of the vessels, the Corps has recognized the need to
assess future repair or replacement options for its hopper dredges.
* Effects on industry. Because the Corps relies on both its own
dredges and industry dredges to complete hopper dredging work, it
needs to factor in both fleets in making future decisions about the
composition of its own fleet. As of March 2014, 13 hopper dredges in
the U.S. industry fleet had been in service for an average of about 27
years, though information on the extent to which these vessels have
been maintained, upgraded, or may be close to going out of service has
not been shared by industry with the Corps. During a discussion with
industry representatives, however, representatives said that the
hopper dredging industry is driven by competition, and they maintain
their dredges to be as efficient as possible to improve their
competitiveness in the market. Corps officials from several district
offices we spoke with said that, because of the increasing use of
industry hopper dredges for nonfederal beach nourishment projects, as
well as anticipated increases in federal hopper dredging projects,
industry's availability to respond to the nation's navigation dredging
needs may be stretched. These officials said that, as a result,
maintaining the Corps' current fleet composition and perhaps
increasing the use of some of the vessels, may be warranted. In
contrast, most of the industry representatives we spoke with said they
believe that industry has the ability to handle any increases in
dredging projects, and the Corps' fleet should be further restricted
or even reduced. These representatives stated that if the Corps
increased its hopper dredge capability, then industry's portion of the
overall dredging work would be reduced possibly leading companies to
increase prices to cover their operating costs or potentially relocate
their hopper dredges overseas.
* Funding uncertainties. Variability regarding federal funding for
dredging also poses challenges to the Corps' plans for its fleet.
While funding for hopper dredging has increased since fiscal year 2003
and was about $370 million in fiscal year 2012, Corps officials and
stakeholders we spoke with said that, at recent funding levels, there
were substantial unmet hopper dredging needs such as providing
dredging for small ports and harbors.[Footnote 32]
In a 2011 study related to the capital investment in its minimum
dredge fleet, the Corps recognized the need to examine whether it
should change the composition of its hopper fleet, such as by retiring
one or more of its vessels, with or without a replacement.[Footnote
33] Among the reasons the Corps listed for preparing this study were
increases in the dredges' operating costs, the estimated costs of
replacing the vessels, their increasing age, and the potential risk to
navigation from reduced minimum fleet availability. The study found
that the Corps' current approach to operating its minimum fleet would
eventually increase the risk to navigating the waterways the Corps was
responsible for dredging. To minimize that risk, the study and its
corresponding August 2013 implementation memorandum, identified
several actions, along with targeted time frames, that the Corps
should take, including:
* evaluating the McFarland's replacement options in 2017, which would
consider replacing it and the Wheeler with one medium-sized hopper
dredge;[Footnote 34]
* deferring minimum fleet sustainment and improvement actions, such as
modifications to improve certain hopper dredges' engine emissions,
until at least fiscal year 2016 and possibly longer; and:
* conducting a life-cycle cost analysis to support funding plans for
future dredging needs which would include a cost comparison to either
(1) use and then replace the vessels or (2) repair and sustain the
vessels.
The 2011 study developed options based on three funding scenarios--
increased, sustained, or decreased--and, as stated in the study and
the Corps' implementation memorandum, the Corps selected the option
associated with sustained funding levels as the best course of action.
Should increased funding become available for dredging, a Corps
official we spoke with said the Corps may need to adjust its planned
course of action. The officials said that the 2011 study could provide
the Corps with direction for adjusting its actions. For example, as
noted in the study under the increased funding scenario, the Corps
could continue with its planned fleet improvements instead of
deferring them under the sustained option.
Conclusions:
Hopper dredges play a vital role in keeping the nation's ports,
harbors, and other waterways open for commerce. Over the past several
decades, the Corps has increasingly relied on industry to carry out
hopper dredging work, but it has also maintained its own minimum fleet
of four hopper dredges, in part to ensure its ability to respond to
critical dredging needs during periods of high demand. The Corps is
faced with the task of balancing the hopper dredging work it contracts
out to industry and maintaining the viability of its own fleet. The
Corps has recognized the need to make changes to manage its hopper
dredge fleet in a fiscally sustainable manner and has taken several
actions to do so, including assessing the need to potentially modify
the composition of its fleet. Since our 2003 report, the Corps has
also made progress in addressing our recommendations to improve the
information it maintains to manage its hopper dredging program,
including modifying data fields in its dredging database to track
solicitations that receive no bids or where all the bids received
exceeded the Corps' cost estimate by more than 25 percent. However,
because Corps district offices are not consistently populating the
database with these solicitation data, the Corps does not have
accurate or complete information that may help it identify potential
gaps in industry's ability to fulfill certain dredging needs, which
could inform its plans for future hopper dredging work. Additionally,
the Corps made attempts to update the industry cost data it uses to
prepare its cost estimates for hopper dredging contracts. Yet, some of
the data it relies on remain outdated, and the Corps has no plans to
update the information, such as through a Corps-wide study. Until the
Corps has a plan for obtaining and then consistently updating reliable
cost data, the Corps' ability to ensure the soundness of its cost
estimates may suffer.
Recommendations for Executive Action:
We recommend that the Secretary of Defense direct the Corps of
Engineers to take the following two actions:
To ensure the Corps of Engineers has the information it needs to
analyze and make informed decisions regarding future hopper dredging
work, provide written direction to its district offices on the
importance of and need to accurately and consistently populate the
data fields in its dredging database that track solicitations that
receive no bids or where all the bids received exceeded the Corps'
cost estimate by more than 25 percent.
To assist the Corps in preparing sound and credible cost estimates for
soliciting bids for hopper dredge work by industry, develop a written
plan for conducting a study to obtain and periodically update data on
hopper dredging costs for its cost estimates, including reliable data
on industry hopper dredge equipment and labor rates.
Agency and Third-Party Comments and Our Evaluation:
We provided a draft of this report to the Department of Defense and
the Dredging Contractors of America (DCA) for review and comment. In
its written comments, reprinted in appendix III, the Department of
Defense concurred with our recommendations and stated that (1) the
Corps will issue a letter to the district offices reinforcing the need
to provide accurately and timely information in the Corps' dredging
database, including information for solicitations that receive no bids
or where all the bids received exceeded the Corps' cost estimate by
more than 25 percent and (2) the Corps will develop a written plan as
resources allow. The Corps also provided technical comments that we
incorporated, as appropriate.
DCA provided written comments, which are summarized below and
reprinted in appendix IV along with our responses. DCA neither agreed
nor disagreed with our recommendations but disagreed with several
statements in our report and raised objections to certain aspects of
our scope and methodology. We disagree with DCA's comments as
discussed below. Specifically, in its comments, DCA disagreed with our
statement that a direct and valid comparison of work performed by
industry to work performed by the Corps is not possible and stated
that a third-party consultant performed an analysis of the Corps and
industry hopper dredges performing similar work. According to DCA's
comments, the industry hopper dredges can work for significantly less
than Corps dredges. As we state in our report, we believe that a
number of factors prohibit a direct and valid comparison of the Corps'
and industry's costs of performing hopper dredge work, including
limits to the number of days some Corps' dredges may operate and
differences between dredging projects, such as the type of material
dredged. In providing its estimates of cost savings for industry
dredging, DCA did not provide information indicating how or whether it
took such factors into account or to enable us to evaluate the
reasonableness of its estimates.
DCA also questioned how, if one of the fundamental conclusions of our
study is that the Corps has not made sufficient progress to improve
the accuracy of its cost estimates, we could use those same government
cost estimates to make industry competitiveness inferences. We
concluded, however, that it is unclear whether statutory restrictions
have affected competition in the hopper dredging industry. In reaching
that conclusion, we analyzed a number of factors--including the number
of companies with hopper dredges, the number of bidders and winning
bid prices for Corps projects, and other factors such as environmental
restrictions, the demand for nonfederal hopper dredging work, and
differences in hopper dredge capabilities. We agree that obtaining
reliable and up-to-date data are important for developing sound cost
estimates, and our report recommends that the Corps develop a written
plan for conducting a study to obtain and periodically update data on
hopper dredging costs for its cost estimates.
DCA disagreed with our discussion on the capacity of the industry
hopper dredge fleet, stating specifically that one industry dredge,
the Long Island, should not have been included in our analysis because
it had not been used for maintenance dredging and had not been used on
a project for quite a few years. For our report, we did not limit our
analysis to particular types of hopper dredging projects, such as
maintenance projects, and we compared industry's total capacity today
with what we reported in 2003, which we believe is a valid comparison.
Moreover, in its comments on our 2003 report on hopper dredging, DCA
included the Long Island in its list of industry dredges to support
its point that industry hopper dredging capacity had increased in the
decade leading up to 2003. As a result, we continue to believe it was
appropriate to include the Long Island as a part of our analysis.
DCA stated our analysis of how the Corps' manages its hopper dredges
was not comprehensive or objective and questioned why we did not
examine options for retiring or further reducing the use of Corps'
dredges. DCA suggested that such an examination should take place and
would be in line with the congressional intent of increasing the use
of private industry dredges. However, DCA quotes selectively from the
main statute that governs the Corps' hopper dredging
activities.[Footnote 35] While those portions of the law read in
isolation could suggest that the Corps should take further steps to
privatize its hopper dredge work, other provisions of the same law
either (1) give the Corps broad discretion to implement its hopper
dredge responsibilities or (2) directly restrict the Corps' ability to
reduce or eliminate Corps' dredges. It was not the purpose of our
report to examine policy options for carrying out the Corps' hopper
dredge work, including those not presently authorized under statute.
We did examine and discuss actions the Corps has taken or plans to
take in managing its hopper dredges, which include, among other
things, conducting a hopper dredge operating cost review and
evaluating retirement or replacement options.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to the
Secretary of Defense, Chief of Engineers and Commanding General of the
U.S. Army Corps of Engineers, and the appropriate congressional
committees, and other interested parties. In addition, the report will
be available at no charge on the GAO website at [hyperlink,
http://www.gao.gov].
If you or your staff members have any questions about this report,
please contact me at (202) 512-3841 or fennella@gao.gov. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. Key contributors to this
report are listed in appendix V.
Sincerely yours,
Signed by:
Anne-Marie Fennell:
Director, Natural Resources and Environment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
This report examines (1) the actions the Corps has taken to address
our 2003 recommendations for improving the information needed to
manage its hopper dredging program and develop cost estimates for
industry contracts; (2) the effects since 2003, if any, of the
statutory restrictions placed on the use of the Corps' hopper dredges;
and (3) key challenges, if any, the Corps faces in managing its hopper
dredge fleet.
To conduct our work, we reviewed Pub. L. No. 95-269, which established
the Corps' minimum fleet, the Water Resources Development Acts of 1996
and 2007, and other laws, regulations, and Corps' policy and guidance
governing the Corps' use of hopper dredges. We interviewed officials
from Corps headquarters, division offices, and the 9 Corps district
offices with the largest hopper dredging workload during fiscal year
2003 through fiscal year 2012 (out of a total of 17 district offices
that contracted with industry for hopper dredging work during the time
period): Galveston, Jacksonville, Mobile, New Orleans, New York,
Philadelphia, Portland, San Francisco, and Seattle. We also visited
the Corps' four hopper dredges and one industry hopper dredge for
informational tours of these vessels to gain a better understanding of
their physical characteristics and operations. We interviewed
representatives from the national association for the dredging
industry, the Dredging Contractors of America, and the five dredging
companies that own and operate hopper dredges--Cashman Dredging, Dutra
Group, Great Lakes Dredge & Dock Company, Manson Construction Co., and
Weeks Marine, Inc. We also interviewed other stakeholders involved in
hopper dredging, including a national pilots' association and a
national port authority association, and local pilots' associations
and port authorities from the areas where Corps hopper dredges are
stationed--New Orleans, LA; Philadelphia, PA; and Portland, OR. We
focused our review on the 10-year period between fiscal year 2003--
when we conducted our previous review of the Corps' hopper dredges
[Footnote 36]--and fiscal year 2012--the most recent year for which
Corps information on hopper dredging was readily available. In
addition, we focused our review on the four hopper dredges in the
Corps' minimum dredge fleet during the period of our review: the
Essayons, McFarland, Wheeler, and Yaquina, and did not include other
dredge types.[Footnote 37]
To examine the actions the Corps has taken to address our 2003
recommendations for improving the information needed to manage its
hopper dredging program and develop cost estimates for industry
contracts, we reviewed the Corps' process for tracking and analyzing
data on solicitations for industry hopper dredging work, both at
district offices and Corps headquarters. We also reviewed several
sources of information the Corps maintains on the use of its hopper
dredge fleet, including information maintained by the district offices
responsible for operating the Corps' four hopper dredges, and the
tracking log the Corps maintains with information on the urgent and
emergency work its ready reserve vessels undertake. In addition, we
reviewed the Corps' 2005 report to Congress on hopper
dredges,[Footnote 38] other Corps studies and policy documents on the
use of its hopper dredge fleet, and the information it uses to prepare
hopper dredging cost estimates when soliciting bids by industry,
including the engineering regulations and the computer program used to
develop government cost estimates. We interviewed officials from the
Corps' cost engineering center of expertise, who were responsible for
developing cost estimating policies and software and officials from
Corps district offices who were responsible for developing cost
estimates for hopper dredging projects.
To examine the effects since 2003, if any, of the statutory
restrictions placed on the use of the Corps' hopper dredges, we
reviewed the statutes, regulations, and Corps' reports and other
documents governing the use of the Corps' hopper dredge fleet. To
assess changes in industry hopper dredging contracts since 2003, we
reviewed and analyzed data from the Corps' Dredging Information
System, the database it uses to maintain information on each of its
dredging projects, including data on the type and location of the
dredging work, the type of contract, and the numbers of bids and bid
prices for the contracts. To assess the reliability of the data, we
interviewed officials from the Corps' Navigation Data Center who
maintain the database, as well as officials from nine Corps district
offices who are responsible for entering and updating data on their
district offices' dredging activities. We reviewed documentation
related to the database, such as the user's guide and data dictionary,
and electronically tested the data for missing or erroneous values
and, in several cases, obtained updated or corrected data from the
Corps. We determined the data we used on the type and location of the
dredging work, the type of contract, and the number of industry bids
and bid prices for sealed-bid solicitations were sufficiently reliable
for our purposes. We also analyzed financial data on the Corps' hopper
dredges, including their operating and ownership costs, and income
from ready reserve funding. To assess the reliability of the Corps'
financial data, we interviewed Corps officials who maintain these
data, compared the data to other sources of information on the Corps'
hopper dredges, and obtained clarifying information from the Corps for
certain items such as ready reserve funding. We determined the data
were sufficiently reliable for our purposes. We obtained and reviewed
information from the five dredging companies that own and operate
hopper dredges, including information on their hopper dredges'
capabilities, dredging work they performed, and changes to their
hopper dredge fleet since 2003. We did not directly compare work
performed by industry hopper dredges with work performed by the Corps'
hopper dredges because, as we first reported in 2003, a direct and
valid comparison of the Corps' and industry's costs to perform hopper
dredge work is not possible due to various factors.[Footnote 39]
To examine key challenges, if any, the Corps faces in managing its
hopper dredge fleet, we reviewed Corps reports and financial data on
its hopper dredge fleet, including a 2011 study on capital investment
plans for its minimum fleet composition[Footnote 40] and a 2012 study
of the fiscal condition of its hopper dredges. In addition to
reviewing the 2012 fiscal study, we also obtained and analyzed
additional data related to the financial condition of the Corps'
hopper dredges. We also obtained and reviewed the Corps' 2012 and 2013
implementation memorandums related to both studies and discussed with
Corps officials the actions the Corps has taken--and plans to take--
related to the memorandums. We examined changes and potential
challenges the Corps faces related to managing its hopper dredge
fleet, including dredging accidents, repair delays, and potential
funding changes. We discussed general Corps fleet management and
composition options with industry officials and the other stakeholders
we interviewed.
We conducted this performance audit from January 2013 to April 2014 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
[End of section]
Appendix II: The U.S. Hopper Dredge Fleet:
As of March 2014, 17 hopper dredges were operating in the United
States, 13 of which were owned by industry (see table 4). In addition,
2 industry hopper dredges are expected to be added to the U.S. fleet
by 2015.
Table 4: Corps and Industry Hopper Dredge Fleets, 2014:
Owner: Cashman Dredging;
Vessel: Atchafalaya;
Size[A]: Small;
Capacity (in cubic yards)[B]: 1,300;
Year built: 1980;
Loaded draft (feet): 14.7.
Owner: Dutra Group;
Vessel: Stuyvesant;
Size[A]: Large;
Capacity (in cubic yards)[B]: 9,870;
Year built: 1981;
Loaded draft (feet): 35.0.
Owner: Dutra Group;
Vessel: Columbia;
Size[A]: Medium;
Capacity (in cubic yards)[B]: 4,350;
Year built: 1986[C];
Loaded draft (feet): 16.5.
Owner: Great Lakes Dredge & Dock Company;
Vessel: Liberty Island;
Size[A]: Large;
Capacity (in cubic yards)[B]: 6,540;
Year built: 2002;
Loaded draft (feet): 28.3.
Owner: Great Lakes Dredge & Dock Company;
Vessel: Terrapin Island[D];
Size[A]: Large;
Capacity (in cubic yards)[B]: 6,400;
Year built: 1981;
Loaded draft (feet): 22.3.
Owner: Great Lakes Dredge & Dock Company;
Vessel: Dodge Island;
Size[A]: Medium;
Capacity (in cubic yards)[B]: 3,600;
Year built: 1980;
Loaded draft (feet): 19.5.
Owner: Great Lakes Dredge & Dock Company;
Vessel: Padre Island;
Size[A]: Medium;
Capacity (in cubic yards)[B]: 3,600;
Year built: 1981;
Loaded draft (feet): 19.6.
Owner: Manson Construction Co.;
Vessel: Glenn Edwards;
Size[A]: Large;
Capacity (in cubic yards)[B]: 13,500;
Year built: 2006;
Loaded draft (feet): 28.0.
Owner: Manson Construction Co.;
Vessel: Bayport;
Size[A]: Medium;
Capacity (in cubic yards)[B]: 4,855;
Year built: 1999;
Loaded draft (feet): 22.0.
Owner: Manson Construction Co.;
Vessel: Newport;
Size[A]: Medium;
Capacity (in cubic yards)[B]: 4,000;
Year built: 1983;
Loaded draft (feet): 19.0.
Owner: Manson Construction Co.;
Vessel: Westport;
Size[A]: Small;
Capacity (in cubic yards)[B]: 1,800;
Year built: 1978;
Loaded draft (feet): 11.0.
Owner: Weeks Marine, Inc.;
Vessel: R.N. Weeks;
Size[A]: Medium;
Capacity (in cubic yards)[B]: 4,000;
Year built: 1987;
Loaded draft (feet): 19.6.
Owner: Weeks Marine, Inc.;
Vessel: B.E. Lindholm;
Size[A]: Medium;
Capacity (in cubic yards)[B]: 4,000;
Year built: 1985;
Loaded draft (feet): 22.3.
Owner: Corps;
Vessel: Wheeler;
Size[A]: Large;
Capacity (in cubic yards)[B]: 8,256;
Year built: 1982;
Loaded draft (feet): 29.5.
Owner: Corps;
Vessel: Essayons;
Size[A]: Large;
Capacity (in cubic yards)[B]: 6,852;
Year built: 1983;
Loaded draft (feet): 33.0.
Owner: Corps;
Vessel: McFarland;
Size[A]: Medium;
Capacity (in cubic yards)[B]: 3,140;
Year built: 1967;
Loaded draft (feet): 23.1.
Owner: Corps;
Vessel: Yaquina;
Size[A]: Small;
Capacity (in cubic yards)[B]: 1,042;
Year built: 1981;
Loaded draft (feet): 14.7.
Hopper dredges planned:
Owner: Weeks Marine, Inc.;
Vessel: Magdalen;
Size[A]: Large;
Capacity (in cubic yards)[B]: 8,500;
Year built: Under construction; estimated completion late 2014 or
early 2015;
Loaded draft (feet): 25.3.
Owner: Great Lakes Dredge & Dock Company;
Vessel: New build;
Size[A]: Large;
Capacity (in cubic yards)[B]: 15,000;
Year built: Construction scheduled to begin in 2014; estimated
completion 2015;
Loaded draft (feet): 29.0.
Sources: U.S. Army Corps of Engineers and dredging industry.
[A] A hopper dredge's size is determined by the capacity of its
hopper--small hopper dredges have a capacity of up to 3,000 cubic
yards, medium hopper dredges have a capacity of 3,001 to 6,000 cubic
yards, and large hopper dredges have a capacity over 6,000 cubic yards.
[B] The capacities of several Corps and industry hopper dredges listed
differ slightly from their capacities listed in our 2003 report. The
capacities listed in this table are based on current information
provided by the Corps and dredging companies.
[C] The Columbia was originally built in 1944 to transport military
equipment in World War II, was later converted to a hopper dredge, and
began its service as a hopper dredge in 1986, according to Corps
documents.
[D] The Terrapin Island was formerly the Eagle I, owned by Bean
Stuyvesant LLC. Great Lakes Dredge & Dock Company acquired and renamed
the dredge in 2007.
[End of table]
[End of section]
Appendix III: Comments from the Department of Defense:
Department of The Army:
Office of The Assistant Secretary:
Civil Works:
108 Army Pentagon:
Washington, DC 20310-0108:
March 27, 2014:
Ms. Anne-Marie Fennell:
Director:
Natural Resources and Environment:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Ms. Fennell:
This is the Department of Defense response to the GAO Draft Report,
GAO-14-290, "Army Corps of Engineers: Actions Needed to Further Improve
Management of Hopper Dredging," dated February 24,2014 (GAO Code
361469).
The Department concurs with the two recommendations in the GAO report,
and will be taking steps to address these recommendations. The
Department appreciates this opportunity to address the GAO
recommendations for improving the management of hopper dredging.
Very truly yours,
Signed by:
Jo-Ellen Darcy:
Assistant Secretary of the Army (Civil Works):
Enclosure:
GAO Draft Report Dated February 24, 2014:
Gao-14-290 (Gao Code 361469):
"Army Corps of Engineers: Actions Needed to Further Improve Management
of Hopper Dredging"
Department Of Defense Comments To The GAO Recommendation:
Recommendation 1: The GAO recommends that the Secretary of Defense
direct the Corps of Engineers to provide written direction to its
district offices on the importance of and need to accurately and
consistently populate the data files in its Dredging Information System
database, including solicitations that receive no bids or where all
the bids received exceed the Corps Government Estimate by more than 25
percent.
DoD Response: Concur. Pending receipt of GAO's final recommendations,
USACE Headquarters will issue a letter to the districts reinforcing
previous direction to provide accurate and timely information in the
Dredging Information System database, including solicitations that
receive no bids or where all the bids received exceed the Corps
Government Estimate by more than 25 percent.
Recommendation 2: The GAO recommends that the Secretary of Defense
direct the Corps of Engineers to develop a written plan for conducting
a study to obtain and periodically update data on hopper dredging
costs for its cost estimates, including reliable data on industry
hopper dredge equipment and labor rates.
DoD Response: Concur. The USACE will develop a written plan as
resources allow.
[End of section]
Appendix IV: Comments from the Dredging Contractors of America:
Note: GAO comments supplementing those in the report text appear at
the end of this appendix.
DCA:
Dredging Contractors of America:
503 D Street, NW:
Washington DC 20001:
March 11, 2014:
Ms. Anne-Marie Fennell:
Director, Natural Resources and Environment:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Fennell:
Attached are the official comments of the Dredging Contractors of
America (DCA) to the proposed Government Accountability Office (GAO)
report entitled Army Corps of Engineers Actions Needed to Further
Improve Management of Hopper Dredging (GAO-14-290). DCA appreciates
the opportunity to respond to this report. The information and results
of this effort will be significant to the future of the DCA hopper
dredging members and the Corps of Engineers (Corps).
DCA is a non-profit organization representing the nation's dredging
and marine construction contractors. DCA members include the five
companies that provide hopper dredging services to the Corps.
Thank you for the cooperation of the Government Accountability Office
in developing this report. Please direct all questions that you may
have regarding DCA comments to me at (202) 737-2674.
Sincerely,
Signed by:
Barry W. Holliday:
Executive Director:
The Dredging Contractors of America (DCA) appreciates the opportunity
to offer written comments on the draft Government Accountability
Office (GAO) report entitled Army Corps of Engineers: Actions Needed
to Further Improve Management of Hopper Dredging (GAO-14-290). DCA
offers the following comments and supporting information:
In Appendix I: Objectives, Scope, and Methodology, GAO describes how
they went about this study, including what they did and what they did
not do. On page 34, is the following statement: “We did not directly
compare work performed by industry hopper dredges to work performed by
the Corps' hopper dredges because, as we reported in 2003, a direct
and valid comparison of the Corps' and industry's costs to perform
hopper dredge work is not possible due to various factors.” DCA
respectfully disagrees, and with the assistance of a third-party
consultant has performed an analysis of the costs of the Corps hopper
dredges and industry hopper dredges performing similar work. As we
state below, our analysis clearly demonstrates that industry dredges
can work for significantly less than Corps dredges. To continue to
work Corps hopper dredges at all, much less increase work for these
dredges, results in increased costs to the taxpayers of the United
States. In light of the results of our study, GAO's statement that,
“Since 2003, statutory restrictions on the use of the Corps hopper
dredges have resulted in additional costs...” is not accurate. [See
comment 1]
Mississippi River Savings:
In the Mississippi River, where the Corps ready reserve hopper dredge
Wheeler is stationed and performs its training days, there were
numerous industry hopper dredge contracts to develop a comprehensive
comparison of similar hopper dredging. This comparison was further
supported by using Corps data on the various hopper dredge pumping
rates of the individual industry hopper dredges and the Wheeler (see
appendix 1). Based on this comparison, it was determined that industry
can perform the work of the Wheeler at an average annual cost savings
of $16 million.
East Coast Savings:
On the East Coast, the Corps ready reserve hopper dredge McFarland, is
used for readiness 70 training days in the Delaware Bay with an
average annual cost of $16 million. A comparable industry dredge can
dredge this 70 days at a cost of $3.7 million, for an average annual
savings of $12 million (see appendix 2). [See comment 2]
West Coast Savings:
On the West Coast, DCA compared the 2008 regional contract that was
procured when the Corps hopper dredge Essayons was being repowered.
The contractor removed 9.5 million cubic yards (mcy) for a total cost
of $23.6 million (see appendix 3). The Essayons average annual cost is
$25.4 million for removal of an average of 6.7 mcy, and an annual
industry contract is procured for additional west coast dredging needs
averaging $8.1 million to dredge 3.4 mcy. The total cost of the
Essayons dredging and the annual industry contract equals $33.5
million, compared to the $23.6 million for the regional contract, or a
savings of $9.9 million if industry does all the Essayons West Coast
hopper dredging. This does not include any potential savings if
industry were to home port a dredge on the West Coast.
GAO, in paragraph 3 of the Executive Summary, discusses the two
challenges facing the Corps “in managing its hopper dredge fleet” as
(1) ensuring the fiscal sustainability of its hopper dredges, and (2)
determining the fleet's appropriate future composition.” GAO
acknowledged that the Corps has had difficulty addressing these
challenges. The total annual savings that could be realized by
industry performing the work of the Wheeler, McFarland, and Essayons
is approximately $38 million, a substantial cost savings to the
taxpayer. With the potential cost savings shown above, and the fact
that the DCA hopper capacity will be increasing by 34 percent within
the next two years, there should be a clear path forward to reduce the
Corps hopper dredge fleet. DCA respectfully requests that GAO evaluate
these potential cost savings and additional potential cost savings
that could be realized from vessel retirements or alternative ready
reserve methods. [See comment 3]
Database Shortcomings:
GAO states that they have examined the actions the Corps has taken
since the 2003 GAO report on hopper dredges with respect to the
recommendations made regarding improvements to the information needed
to manage the Corps hopper dredging program and develop cost estimates
for industry contracts. DCA continues to support the use of updated
hopper dredging cost data for developing their cost estimates. [See
comment 4] DCA continues to be frustrated that the Corps does not
provide an accurate and complete database to effectively manage the
Corps hopper dredging program. DCA has identified numerous omissions
and inaccuracies in the Dredging Information System (DIS) for both the
Corps hopper dredges and the industry contract data. DCA agrees that
the Corps should improve the information for characterizing urgent and
emergency dredging actions and results. However, DCA does not know of
any emergencies, as defined by the FAR, being declared over the past
ten years that would require call out of a Corps hopper dredge. [See
comment 5]
Government Estimates:
On page 15, paragraph 2, GAO states, “Since 2003, statutory
restrictions on the use of the Corps hopper dredges have resulted in
additional costs, but it is unclear whether the restrictions have
affected competition in the hopper dredging industry.” DCA is
concerned that GAO repeatedly comments on the lack of evidence of
increased competition based solely on the number of bidders and
winning prices for Corps hopper dredging projects. [See comment 4 and
6] With the introduction of Multiple Award Task Order Contracting
(MATOC) as a procurement method in some districts, the Corps no longer
reveals the number of bidders or the Government Estimate (GE) for
these task order contracts. This distorts any analysis of the number
of bidders, and without the GE, there is no means to evaluate how the
GE compares to industry bids. Moreover, GAO indicates that the Corps
has made unsatisfactory progress since 2003 in addressing its need for
updated industry cost information in order to produce more accurate
GEs, but then relies heavily on a comparison of industry bids to those
same potentially inaccurate GEs in its analysis, leading to inaccurate
conclusions with respect to industry competitiveness. If one of the
fundamental conclusions of this study is that the Corps has not made
sufficient progress to improve the accuracy of its cost estimates, how
can those same GEs be used to make industry competitiveness
inferences? [See comment 7]
Industry Capacity:
As the GAO report shows, the amount of work for hopper dredges has
remained relatively flat since 2003. DCA agrees that this is the
reality. The restrained Corps budgets and year-long Continuing
Resolutions offer little incentive to increase the number of hopper
dredges. As GAO points out, with the Southeast projects required to be
dredged during the winter months due to sea turtle concerns, and that
most East Coast beach nourishment is required to be done during the
winter months, certain seasons of the year experience peak workload
demand for the hopper dredges.
DCA hopper dredge companies have sufficient capacity for the current
dredge market, and two additional large capacity hopper dredges are
being currently constructed. DCA does not agree with the discussion on
capacity of the industry fleet. [See comment 8] The 16,000 cubic yard
hopper dredge Long Island was not used for maintenance dredging, had
not been used on a project for quite a few years, and should not be
included in the capacity analysis. The other three dredges were
removed from the U.S. market because of a lack of work, not because of
overseas demand. The purchase of the Stuyvesant by a U.S. dredging
company ensures that this large hopper dredge will remain in the U. S.
and not be periodically out of U.S., as in the past. When the two new
large hopper dredges are launched there will be a 34% increase in
industry hopper capacity. [See comment 9]
DCA considers the Corps dredges Currituck and Murden to be small-class
hopper dredges and both should have been evaluated in this GAO study
of Corps hopper dredges. The Currituck has been categorized as a
special purpose dredge and previously left out of Corps minimum fleet
discussions. However, it has become a concern for the dredging
industry regarding the Corps dredging in projects that have
historically been accomplished with industry dredges. The Murden is
the newest Corps hopper dredge, with a hopper capacity of 500 cubic
yards, and has already been performing dredging in projects
historically accomplished by industry dredges. [See comment 10]
Ready Reserve or Retirement of Corps Dredges:
In paragraph 3, of the Executive Summary, GAO discusses the two
challenges facing the Corps “in managing its hopper dredge fleet” as
“(1) ensuring the fiscal sustainability of its hopper dredges, and (2)
determining the fleet's appropriate future composition.” DCA does not
consider the GAO analysis of how the Corps manages its hopper dredges
to be comprehensive or objective. It appears to support a status quo
position that must ensure the fiscal sustainability of the Corps
hopper dredges. [See comment 3] This is not in the best interest of
the taxpayer. As GAO acknowledges in the draft report, Congress
enacted legislation that places restrictions on Corps hopper dredges
to further encourage the Corps to contract with private industry for
hopper dredging. DCA questions why GAO did not address retiring aging
Corps vessels. The Corps has elected to invest millions of dollars to
upgrade these dredges and now declares them too expensive to not
operate more. In fact, because the Wheeler costs have dramatically
increased, and the vessel is still operating in the red, the Corps is
considering increasing the daily rate even more, operating the dredge
more training days (which is counter to the WRDA Section 237
requirement to operate only the minimum training days), and is seeking
additional appropriations for the project to pay for this dredge's
costs. This is throwing good money after bad! [See comment 11]
DCA questions why GAO did not look at alternative Ready Reserve
methodologies, including using industry dredges in a ready reserve
mode. According to a recent study (Navigistics Consultants, 2014),
“the U.S. Navy's Military Sealift Command (MSC) is the leading
provider of ocean transportation for the Department of Defense (DOD)
and operates the Navy's non-combatant supply ships, such as the Large
Medium Speed Roll-On/Roll-Off (RO-ROs) or LMSRs.” The MSC uses private
commercial managers to man and operate many of its owned auxiliary
vessels in a ready reserve/reduced operating mode. The operating
contract rates for keeping these vessels in a reduced operating
status, that requires these vessels to be fully crewed and operational
within four days, realize average reductions in daily operating costs
ranging from almost 60% to 68%. Based on these costs in comparison to
the LMSR contracts, it seems clear that the Corps is not utilizing
ready reserve status to the same extent as the MSC. Even if you look
at the least potential savings at 60% for the Navy LMSRs, the cost
savings could be substantial for the Corps hopper dredges Wheeler and
McFarland. If you just consider the operating costs and repair costs,
and apply this potential 60% savings, the annual savings could be
almost $20 million, according to the Navigistics Study. [See comment
12]
On page 16, in the GAO draft report Section entitled Statutory
Restrictions Have Resulted in Additional Costs for Corps Hopper
Dredging, GAO again appears to be focused on impacts to the Corps
dredges rather than acknowledging that Congress has legislated the
Wheeler and McFarland to be in Ready Reserve (as fire engines) and
they have been willing to fund the two Corps dredges to be ready to
respond to the unforeseen requirements. [See comment 13] While GAO
acknowledges that many of the costs of these two Corps ready reserve
hopper dredges are incurred “regardless of how much the dredges are used
”, there is no mention or recommendation of alternatives in crewing
and other costs that might reduce the substantially higher rates these
dredges require to operate. To say that, ”in the case of the Wheeler,
the limited dredging days since being placed in ready reserve have
contributed to higher daily rates”, is very misleading, and DCA
strongly disagrees with this conclusion. [See comment 14] The
decisions to replace the engines on the Wheeler and maintain full time
crews, and changes in the financial accounting have substantially
increased the cost of this dredge. Certainly, you could increase the
dredging days and theoretically it should bring down the daily rate,
but the fixed costs are so high, any reductions would be marginal if at
all. In fact, the Corps hopper dredge Essayons, operating on the West
Coast with no restrictions, has substantially increased their annual
costs and daily rate since becoming totally unrestricted.
On page 11, within the Section of the GAO draft report entitled The
Corps Collects Recommended Data on Urgent or Emergency Dredging but
Does Not Consistently Collect Data on Certain Solicitations, there are
several troublesome issues. It appears that GAO disregards the basic
Congressional tenet of Section 237 of WRDA 1996 – “The Secretary shall
initiate a program to increase the use of private-industry hopper
dredges for the construction and maintenance of Federal navigation
channels.“ [See comment 15] GAO appears to be encouraging the Corps to
collect more solicitation information to enhance the opportunities for
the Corps hopper dredges to be used more. And, in fact, GAO states “
Without complete data on no-bid and high-bid solicitations, the Corps
may be missing opportunities to plan future hopper dredging work that
identifies and addresses potential gaps in industry's ability to
fulfill certain dredging needs based on this solicitation information.”
DCA contends that this comment completely contradicts the intent of
Congress, and the Corps should be learning how to better manage full
use of the industry hopper dredges, not the Corps dredges. The example
GAO raises, an urgent hopper dredging job in North Carolina in January
2013, is an example of how the Corps is not properly seeking ways to
increase the use of industry hopper dredges for urgent requirements.
The district did not seek to reduce the scope of the dredging job for
industry to be bid, but canceled the original procurement. Instead the
Corps ready reserve hopper dredge McFarland was mobilized at enormous
expense. The McFarland dredged for 30 days and only removed
approximately 125,000 cubic yards of material, and the channel was not
restored to project depth. A similar size industry dredge could have
removed this quantity of material in less than 12 days, and a
substantially reduced cost. There was no attempt to “Use Industry First”
and the Corps did not comply with Section 237 of WRDA 1996 which
states – “The Secretary shall develop and implement procedures to
ensure that, to the maximum extent practicable, private industry
hopper dredge capacity is available to meet both routine and time-
sensitive dredging needs.“ [See comment 16]
The following are GAO's comments on the letter from the Dredging
Contractors of America dated March 11, 2014.
1. We believe that various factors prohibit a direct and valid
comparison of the Corps' and industry's costs to perform hopper dredge
work including: (1) design features in the Corps' vessels in support
of national defense missions, which add weight to the vessels and make
them less efficient than industry dredges; (2) limits to the number of
days some of the Corps' vessels may operate; and (3) differences
between dredging projects--such as type of material dredged, type of
work, corresponding risk level, and distance from the dredging
operations to the placement site. In providing its estimates of cost
savings for industry dredging, DCA provided no information indicating
how or whether its third-party consultant took such factors into
account. DCA also did not provide enough information on the
consultant's analysis for us to be able to determine how it reached
its conclusions that industry dredges can work for less than Corps
dredges. Based on our work, we continue to believe, as we state in our
report, that since 2003, statutory restrictions on the use of Corps'
hopper dredges have resulted in additional costs to the Corps.
2. DCA referred to three appendixes in their written comments. These
appendixes included Excel spreadsheets with various dredging data. We
did not reprint these spreadsheets with DCA's written comments.
3. It was not the purpose of our report to evaluate policy options for
carrying out the Corps' hopper dredge work, including those not
presently authorized by law, such as vessel retirements or alternative
ready reserve methods. The Corps' authority to retire its hopper
dredges or reduce their workload is limited by statute, and DCA did
not indicate why it believes retirements would be consistent with
existing law. According to statute, the Corps "may not further reduce
the readiness status of any Federal hopper dredge below a ready
reserve status except any vessel placed in such status for not less
than 5 years that the Secretary determines has not been used
sufficiently to justify retaining the vessel in such status."[Footnote
41] The Corps has made no such determination. In addition, the Corps
may "not reduce the availability and utilization of Federal hopper
dredge vessels stationed on the Pacific and Atlantic coasts below that
which occurred in fiscal year 1996 to meet the navigation dredging
needs of the ports on those coasts."[Footnote 42] In the Water
Resources and Development Act of 2007, Congress directed the Corps to
place the McFarland in ready reserve.[Footnote 43] But even assuming
this provision implicitly repealed the prior statute as applied to the
McFarland, the Water Resources and Development Act of 2007 provided
that the McFarland must be maintained in a "ready reserve fully
operational condition." Similarly, the law requires the Wheeler to be
maintained in a "fully operational condition."[Footnote 44]
Furthermore, the law assigns to the Corps the responsibility for
carrying out hopper dredge work "in the manner most economical and
advantageous to the United States."[Footnote 45] This language
"evidences congressional intent to confer on the Army Corps wide
discretion in matters relating to its dredging activities."[Footnote
46]
4. We used only the Dredging Information System data that we
determined were sufficiently reliable for our purposes. Specifically,
as noted in our report, we used data on the type and location of
dredging work, the type of contract, and the number of industry bids
and bid prices for sealed-bid solicitations. DCA stated that, with the
introduction of Multiple Award Task Order Contracting, our analysis of
the number of bidders and bid prices may be distorted. As noted in our
report, however, we limited our analysis to awarded, sealed-bid
solicitations for which the Corps had reliable data on the numbers of
bids and bid prices, and we did not include the procurement method
mentioned by DCA. Our analysis of the Dredging Information System data
indicates that about 76 percent of hopper dredging contracts awarded
by the Corps from fiscal year 2003 through fiscal year 2012 (and about
89 percent of hopper dredging contracts awarded in fiscal year 2012
alone) were awarded through the sealed-bid process.
5. In characterizing urgent and emergency work in our report, we
relied on the definitions outlined in the Corps' raise the flag
procedure, which we believe was the appropriate way to define and
report on how the Corps collects and tracks the urgent or emergency
work its hopper dredges carry out. Corps data show that urgent and
emergency work have occurred from fiscal year 2003 through fiscal year
2012 as we state in our report.
6. We did not comment on the lack of evidence of increased competition
based solely on the number of bidders and winning bid prices for Corps
hopper dredging projects. Rather, we reached our conclusion--that it
is unclear whether statutory restrictions have affected competition in
the hopper dredging industry--after analyzing a number of factors,
including the number of companies with hopper dredges, the number of
bidders and winning bid prices for Corps projects, and other factors
such as environmental restrictions, the Corps' efforts to better
coordinate dredging activities, demand for nonfederal hopper dredging
work, and differences in hopper dredge capabilities. See also comment
4.
7. We did not make industry competitiveness inferences based on the
Corps' cost estimates alone, see comment 6. We agree that obtaining
reliable and up-to-date data are important for developing sound cost
estimates, and our report recommends that the Corps develop a written
plan for conducting a study to obtain and periodically update data on
hopper dredging costs for its cost estimates.
8. We included the industry hopper dredge Long Island as available
hopper dredge capacity in 2003, based on information provided by the
Corps and DCA. In official comments on our 2003 report on hopper
dredging, DCA included the Long Island in its list of industry dredges
to support the point that industry hopper dredging capacity had
increased in the decade leading up to 2003. This dredge was since
removed from the U.S. market and, therefore, we factored its removal
in our calculation of the change in overall industry capacity since
2003. We included all hopper dredging projects in our analysis and did
not limit our analysis to maintenance projects. In addition, we did
not examine use, but rather industry capacity.
9. During interviews with the industry representatives who owned the
dredges that were removed from the U.S. market, we were told that the
dredges were moved overseas, in part, because of increasing demand for
hopper dredges by foreign governments, and, that the dredges have
performed work overseas, indicating overseas demand. We also recognize
a lack of work in the United States may have also been a factor in the
relocation of these dredges, and we have added text to our report to
note this.
10. We used the Corps' definition of its minimum hopper dredge fleet
in determining the scope of our review. The law establishing the
minimum fleet gave the Corps discretion to determine the fleet's size
and composition.[Footnote 47] In addition, the capacity of the four
Corps' hopper dredges ranges from about 1,050 cubic yards to about
8,300 cubic yards, which is similar to the private industry hopper
dredges' capacity, which ranges from 1,300 cubic yards to 13,500 cubic
yards. In contrast, the Murden and Currituck's total capacity is 512
and 315 cubic yards, respectively, making them significantly smaller
dredges than the hopper dredges in the Corps' and private industry's
fleet. Moreover, the Murden was commissioned into active duty in May
2013, and it was, therefore, not part of the Corps' fleet during the
period of our review, from fiscal year 2003 through fiscal year 2012.
11. The law makes no reference to "training days" and does not impose
a specific cap on the number of days for which the Wheeler may
operate. The Corps has, as a matter of practice, scheduled training
work for the Wheeler in order to "periodically perform routine tests
of the equipment of the vessel to ensure the vessel's ability to
perform emergency work."[Footnote 48]
12. An examination of using industry dredges in a ready reserve mode
was beyond the scope of this review.
13. In our report, we make frequent references to the fact that
legislation placed the Wheeler and the McFarland in ready reserve, and
we provide funding information for the Corps' dredging program,
including the specific funding to support the Wheeler and McFarland in
their ready reserve status. We did not identify alternatives for how
the Corps might reduce the costs to operate these vessels, but we did
examine and discuss actions the Corps has taken or plans to take in
managing its hopper fleet, which include, among other things,
conducting a hopper dredge operating cost review and evaluating
retirement or replacement options.
14. The way that hopper dredges recover their costs is by actively
dredging, and, fewer days of work will equate to higher rates when
work is performed because of the fewer days available to spread out
costs. As noted in our report, daily rates for Corps hopper dredges
have increased and may continue to increase due to several factors
such as increasing fuel costs and changes in Corps accounting methods,
in addition to ready reserve restrictions on two of the dredges. We
did not quantify the extent to which individual factors contributed to
increases in daily rates, rather we report that restrictions on the
number of days ready reserve hopper dredges can work have contributed
to increases in their daily rates. We agree that the Essayons,
operating on the West Coast with no restrictions, has increased its
annual costs and daily rates since becoming unrestricted. However, we
found that the increase in the Essayons daily rate from $95,000 in
fiscal year 2008--the last year in which it was restricted--to
$100,000 in fiscal year 2012 was substantially smaller than that of
the Wheeler, with a daily rate increase from $95,000 to $140,000 over
the same period.
15. We agree that one basic congressional tenet of the Water Resources
Development Act of 1996 was to increase the use of private industry
hopper dredges but, as we have noted, the law also directly restricts
the Corps' ability to reduce the use of or eliminate Corps' dredges.
See comment 3. We do not agree that collecting more solicitation
information would result in enhanced opportunities for the Corps'
hopper dredges to be used more. Rather, we believe that in collecting
this solicitation information, the Corps may be able to better plan
for future hopper dredging work, whether done by industry dredges or
Corps dredges.
16. Based on our review of Corps' documentation related to the example
cited, we found that industry was provided several opportunities to
bid on the work. Specifically, after soliciting bids for the work and
receiving only one bid, which was more than 25 percent above the
government cost estimate, the Corps reviewed its cost estimate, found
it to be reasonable, and began negotiations with the company that had
submitted the bid. The parties were unable to agree on a price for the
work, however, so the Corps then provided a second notification to
industry, indicating that there was an urgent need for dredging.
According to Corps documentation, no dredging company expressed both
the availability and the capability to address the dredging need and,
therefore, the Corps used one of its own dredges to complete the work.
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Anne-Marie Fennell, (202) 512-3841 or fennella@gao.gov:
Staff Acknowledgments:
In addition to the individual listed above, Alyssa M. Hundrup,
Assistant Director; Hiwotte Amare; John Delicath; Cindy Gilbert; Miles
Ingram; Richard P. Johnson; Delwen Jones; Kirk D. Menard; Samuel
Morris; Mehrzad Nadji; Dan Royer; and Tatiana T. Winger made key
contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 95-269 (1978).
[2] Corps of Engineers, Minimum Fleet Capital Investment Report, 2012-
2061 (Washington, D.C.: Dec. 12, 2011; revised Apr. 26, 2013).
[3] The Corps began implementing the restrictions on the workdays for
the Essayons, McFarland, and Yaquina on October 1, 1993, and placed
the Wheeler into ready reserve on October 1, 1997. See table 1 for the
statutory restrictions in place on the use of the Corps' hopper
dredges, and how they have changed since fiscal year 2003.
[4] H.R. Rep. No. 104-695 at 158-59 (1996).
[5] Pub. L. No. 110-114, § 2047 (2007). The Corps placed the McFarland
into ready reserve on December 30, 2009.
[6] GAO, Corps of Engineers: Effects of Restrictions on Corps' Hopper
Dredges Should Be Comprehensively Analyzed, [hyperlink,
http://www.gao.gov/products/GAO-03-382] (Washington, D.C.: Mar. 31,
2003).
[7] Corps, 2011 Minimum Fleet Capital Investment Report.
[8] A hopper dredge's size is determined by the capacity of its
containment area or its "hopper"--small hopper dredges have a capacity
of up to 3,000 cubic yards, medium hopper dredges have a capacity of
3,001 to 6,000 cubic yards, and large hopper dredges have a capacity
over 6,000 cubic yards.
[9] The 2007 act did not specify any change in the restrictions on the
Wheeler; however, beginning in fiscal year 2008, the Corps increased
the Wheeler's training days from 55 to 70 days. According to Corps
officials, the Corps set the Wheeler's training days at 70 days to be
consistent with the day limit established for the McFarland by the
2007 act.
[10] There have been other legislative attempts to further alter the
operations of the Corps fleet. For example, a House-passed bill in
2006 would have eliminated all funding for operating and maintaining
the McFarland, but not for decommissioning the vessel. H.R. 5427, §
104 (2006). A Senate appropriations bill for fiscal year 2012 would
have required the Corps to fully utilize all Corps hopper dredges
without restriction. H.R. 2354, § 110 (2011).
[11] In addition to being no more than 25 percent above the government
cost estimate, bids must be considered responsive in order to be
awarded. One element the contractor generally must have in order for
the Corps to consider a bid to be responsive is access to the required
equipment for performing the scope of work. In addition to sealed-bid
solicitations, the Corps awards hopper dredging contracts using
requests for proposals, which allow the Corps to evaluate proposals on
the basis of criteria other than price. Using the request for
proposals process, the Corps may award a contract on a sole-source
basis after negotiating with a single company because, for instance,
there is an urgent need for dredging and soliciting work from multiple
contractors would cause unacceptable delays. Additionally, a bidder
who provides a responsive bid must be considered a responsible bidder
which entails, among other things, that the bidder has adequate
financial capability.
[12] [hyperlink, http://www.gao.gov/products/GAO-03-382].
[13] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: Nov. 1, 1999).
[14] As part of this recommendation, we also recommended that the
Corps examine the policies related to calculating transit costs--the
costs for an industry dredge to travel to a project site--because the
Corps was relying on an expired policy for some of its solicitations.
The Corps updated the regulation containing its policies on
calculating transit costs in 2008.
[15] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1].
[16] GAO, Cost Estimating and Assessment Guide: Best Practices for
Developing and Managing Capital Program Costs, [hyperlink,
http://www.gao.gov/products/GAO-09-3SP] (Washington, D.C.: March
2009). The guide states that updating and keeping cost estimates
current to reflect changes in technical assumptions is one of the
features of a high-quality, cost-estimating process and a best
practice that helps develop reliable cost estimates that management
can use for informed decisions.
[17] U.S. Army Corps of Engineers, Report to Congress: Hopper Dredges
(Washington, D.C.: June 3, 2005). The 2004 Energy and Water
Appropriations Act conference report referenced our 2003 report on the
Corps' hopper dredges and also directed, among other things, that the
Corps prepare an analysis of the costs and benefits of the existing
and proposed restrictions on the use of its hopper dredges.
[18] Similarly, we found, in 2003, that the restrictions on the Corps'
hopper dredge fleet at that time had imposed costs on the Corps'
dredging program, but had not yet resulted in proven benefits--such as
more bids per Corps solicitation or lower prices for winning bids. See
[hyperlink, http://www.gao.gov/products/GAO-03-382].
[19] We found, in 2003, that in the 4 years after the Wheeler was
placed in ready reserve, the average cubic yards it dredged per year
decreased by 56 percent from its average over the 4 years prior to
being placed in ready reserve, while its average costs decreased by 20
percent over the same period. See [hyperlink,
http://www.gao.gov/products/GAO-03-382].
[20] Daily rates for Corps hopper dredges have increased and may
continue to increase due to several factors such as increasing fuel
costs and changes in Corps accounting methods, in addition to ready
reserve restrictions. While future increases in the McFarland's daily
rate may be needed if unanticipated cost increases are experienced,
such increases could also apply to any of the Corps' hopper dredges.
We did not quantify the extent to which individual factors contributed
to increases in daily rates.
[21] U.S. Army Corps of Engineers, Report to Congress: Hopper Dredges
(Washington, D.C.: June 3, 2005).
[22] Private industry hopper dredges may also respond to urgent or
emergency dredging needs, precluding the need for the Corps to use one
of its dredges. The Corps does not systematically track data on when
it contracts with private industry to respond to urgent or emergency
dredging events, however, and so data are not available to compare the
use of Corps' dredges and industry dredges to respond to urgent or
emergency events.
[23] According to a representative from DCA, a lack of work in the
United States was also a factor in the relocation of some of these
industry vessels. A vessel may engage in dredging in U. S. waters only
if it is built, owned, and flagged in the United States. As a result,
vessels that are relocated overseas and operated under a foreign flag
are unable to dredge in the United States. The process of reflagging
under the U.S. flag is generally so costly that it would effectively
cause a dredge to be unable to compete in the United States, according
to dredging industry representatives. As a result, the Corps and the
dredging industry do not consider U.S.-owned dredges operating in
foreign markets in their planning or analyses of the U.S. market.
[24] This analysis shows a relationship between the number of bids per
Corps solicitation and the winning bid prices for those solicitations,
but it does not establish a cause-and-effect relationship.
[25] Similarly, we found, in 2003, that from fiscal year 1990 through
fiscal year 2002, years with more industry bids per Corps solicitation
for hopper dredging generally had lower winning bid prices on average
relative to the Corps' cost estimate. See [hyperlink,
http://www.gao.gov/products/GAO-03-382].
[26] Similarly, we found, in 2003, that after restrictions were placed
on the number of days the Corps' hopper dredges could work, the
average number of bids per Corps solicitation decreased, and the
percentage of winning bids below the Corps' cost estimate decreased.
[27] The Corps' South Atlantic Division extends from North Carolina to
the eastern portion of the Gulf Coast.
[28] Army Corps of Engineers, USACE Dredge Back to Black Plan
(Washington, D.C.: June 29, 2012).
[29] According to Corps criteria for these studies, the Corps'
evaluation of these vessels will include examining current and future
Corps mission requirements, and the affordability of the vessel,
including operating costs, program support, likely alternative funding
sources, planned investments along with those to date, and the
additional hidden costs of vessel support (such as spare parts
inventory, shoreside personnel and facilities, and the impacts of any
personnel action, etc.).
[30] A Corps official told us that the August 2013 grounding accident
that the Essayons' experienced while dredging made the vessel
inoperable for about a month while it underwent repairs. In the case
of the Wheeler, a Corps official estimated that the delays in
replacing the Wheeler's engines caused the vessel to remain out of
operation at least 4 months more than the Corps initially planned. In
addition, during this time, a cruise vessel broke free from its
moorings during a storm and collided with the Wheeler when it was in
the repair yard, which further delayed the Wheeler's return to work,
according to the Corps.
[31] The Wheeler is not statutorily limited to a specific number of
annual training days under ready reserve, but, since fiscal year 2008,
the Corps has targeted the vessel's work to 70 training days annually,
which is the same number of days the McFarland is permitted to work by
statute under ready reserve. Both ready reserve vessels can also be
used in urgent or emergency situations beyond their 70-day limits. See
table 1 for the statutory restrictions in place on the use of all the
Corps' hopper dredges.
[32] As of the time of this report, pending water resources
development legislation in both the House and Senate would propose
increasing annual funding for maintenance dredging through fiscal year
2020 and beyond. In addition, the Senate bill would require the Corps
to study, among other things, "the needs of the United States for
dredging, including the need to increase the size of private and Corps
of Engineers dredging fleets to meet demands for additional
construction or maintenance dredging needed as of the date of
enactment of this Act and in the subsequent 20 years." H.R. 3080 (as
amended by the Senate) § 2024(b)(2) (2013).
[33] Corps, 2011 Minimum Fleet Capital Investment Report. This study
encompassed all 10 dredges in the Corps' minimum dredge fleet, which
includes the 4 hopper dredges reviewed in this report, and 6 other
dredges of different types that are generally used for different
dredging projects.
[34] According to the minimum fleet study, "replacement options"
include replacement, recapitalization, retirement, or divestment. The
study noted that the McFarland and Wheeler were two primary vessels
where consolidation is most likely to be considered, although the
study also showed that the Wheeler was not scheduled to be evaluated
for replacement until 2037.
[35] 33 U.S.C. § 622.
[36] [hyperlink, http://www.gao.gov/products/GAO-03-382].
[37] We did not include the Corps' two "special purpose" hopper
dredges--the Currituck and the Murden--because though these two
vessels share some characteristics with the four larger hopper
dredges, such as having hoppers and drag arms, they are substantially
smaller than the rest of the Corps' or industry hopper dredge fleet.
Specifically, the Currituck has a hopper capacity of 315 cubic yards,
and the Murden has a hopper capacity of 512 cubic yards.
[38] U.S. Army Corps of Engineers, Report to Congress: Hopper Dredges
(Washington, D.C.: June 3, 2005).
[39] [hyperlink, http://www.gao.gov/products/GAO-03-382]. These
factors include, among other things, design features in the Corps'
vessels in support of national defense missions, which add weight to
the vessels and make them less efficient than industry vessels; limits
to the number of days some of the Corps' vessels may operate; and
differences between dredging projects--such as type of material
dredged, type of work and corresponding risk level, and distance from
the dredging operations to the placement site.
[40] Army Corps of Engineers, Minimum Fleet Capital Investment Report,
2012-2061 (Washington, D.C.: Dec. 12, 2011; revised Apr. 26, 2013) and
Army Corps of Engineers, USACE Dredge Back to Black Plan (Washington,
D.C.: June 29, 2012).
[41] 33 U.S.C. § 622(c)(7)(A).
[42] 33 U.S.C. § 622(c)(7)(C).
[43] Pub. L. No. 110-114, § 2047, 121 Stat. 1105.
[44] 33 U.S.C. § 622(c)(3).
[45] 33 U.S.C. § 622(a).
[46] Northlight Harbor LLC v. United States, 561 F.Supp.2d 517, 523
(D.N.J. 2008).
[47] The law provides that the Secretary of the Army, acting through
the Corps, "may retain so much of the federally owned fleet as he
determines necessary, for so long as he determines necessary, to
insure the capability of the Federal Government and private industry
together to carry out projects for improvements of rivers and harbors"
(33 U.S.C. § 622(b) (emphasis added).
[48] 33 U.S.C. § 622(c)(3).
[End of section]
GAO's Mission:
The Government Accountability Office, the audit, evaluation, and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the
performance and accountability of the federal government for the
American people. GAO examines the use of public funds; evaluates
federal programs and policies; and provides analyses, recommendations,
and other assistance to help Congress make informed oversight, policy,
and funding decisions. GAO's commitment to good government is
reflected in its core values of accountability, integrity, and
reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's website [hyperlink, http://www.gao.gov]. Each
weekday afternoon, GAO posts on its website newly released reports,
testimony, and correspondence. To have GAO e-mail you a list of newly
posted products, go to [hyperlink, http://www.gao.gov] and select
"E-mail Updates."
Order by Phone:
The price of each GAO publication reflects GAO's actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black
and white. Pricing and ordering information is posted on GAO's
website, [hyperlink, http://www.gao.gov/ordering.htm].
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional
information.
Connect with GAO:
Connect with GAO on facebook, flickr, twitter, and YouTube.
Subscribe to our RSS Feeds or E mail Updates. Listen to our Podcasts.
Visit GAO on the web at [hyperlink, http://www.gao.gov].
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Website: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm];
E-mail: fraudnet@gao.gov;
Automated answering system: (800) 424-5454 or (202) 512-7470.
Congressional Relations:
Katherine Siggerud, Managing Director, siggerudk@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, DC 20548.
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, DC 20548.
[End of document]